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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
EMCOR GROUP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2125338
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE.
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE.
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ITEM 1. BUSINESS
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GENERAL
EMCOR Group, Inc. ("EMCOR" or the "Company") (formerly known as JWP INC.)
is a leader in mechanical/electrical construction and maintenance services.
EMCOR's mechanical and electrical services business units ("MES" or "MES
Companies") specialize in the design, distribution, integration, installation
and maintenance of complex mechanical and electrical systems. Services are
provided to a broad range of commercial, industrial and institutional customers
through offices located in major markets throughout the United States and 19
offices located in Canada, the United Kingdom and the Middle East.
The MES Companies provide mechanical and electrical services directly to
end-users (including corporations, municipalities and other governmental
entities, owner/developers and tenants of buildings) and, indirectly, by acting
as subcontractor for construction managers, general contractors and other
subcontractors.
The Company also owns and operates Jamaica Water Supply Company, which is
the largest investor-owned water utility in New York State and serves portions
of Queens County and Nassau County in New York State, and Sea Cliff Water
Company, a water utility which serves a small portion of Nassau County. The
Company has decided to sell both Jamaica Water Supply Company and Sea Cliff
Water Company as part of its business restructuring plan (the "Restructuring").
As discussed in more detail below under "The Restructuring and Chapter 11
Proceeding," since 1992 EMCOR has been engaged in an ongoing Restructuring of
its various businesses and recently reorganized under Chapter 11 of the United
States Bankruptcy Code and is continuing to experience losses. From August 1992
until February 1994, when it obtained debtor-in-possession financing, EMCOR did
not have available credit facilities, and cash flow from operations was
inadequate to fund its operations and service its debt and other obligations.
Consequently, the Company had to fund operations from working capital and from
the proceeds of sales of businesses and other assets.
On December 15, 1994 (the "Effective Date"), the Company emerged from
Chapter 11 of the Bankruptcy Code pursuant to its Third Amended Joint Plan of
Reorganization dated August 9, 1994, as amended (the "Plan of Reorganization"),
proposed by EMCOR and its subsidiary, SellCo Corporation ("SellCo"). Under the
Plan of Reorganization, prepetition creditors of the Company (other than holders
of subordinated debt) received, in addition to certain notes of EMCOR and
SellCo, substantially all of the common stock of EMCOR. Prepetition holders of
the Company's subordinated debt, preferred stock, common stock and warrants of
participation received warrants to purchase common stock of EMCOR in exchange
for their debt and equity interests. See "The Restructuring and Chapter 11
Proceeding -- Plan of Reorganization."
EMCOR is a Delaware corporation, formed in 1987 to continue the business of
its predecessor, a New York corporation with the name JWP INC. The Delaware
corporation was also originally named JWP INC. but changed its name to EMCOR
Group, Inc. on the Effective Date. The Company's executive offices are located
at 101 Merritt Seven Corporate Park, Norwalk, Connecticut 06851-1060, and its
telephone number at those offices is (203) 849-7800.
MECHANICAL/ELECTRICAL SERVICES
The MES Companies specialize in the design, distribution, integration,
installation and maintenance of complex mechanical and electrical systems. The
wide range of the Company's MES Companies are more particularly described below.
The MES Companies had total revenues of
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approximately $2,195 million (approximately 70% of EMCOR's total consolidated
revenues, including discontinued operations) in 1993 and approximately $1,764
million (approximately 96% of EMCOR's total consolidated revenues, including
discontinued operations) in 1994.
Range of Mechanical and Electrical Services. The MES Companies are
primarily involved in the design, integration, installation and maintenance of
(i) distribution systems for electrical power (including power cables, conduits,
distribution panels, transformers and generators), (ii) lighting systems and
(iii) heating, ventilating, air conditioning, plumbing, process and high purity
piping and clean air systems. EMCOR believes its mechanical and electrical
services business is the largest of its kind in the United States and Canada and
one of the largest in the United Kingdom.
Mechanical and electrical services are principally of three types: (1)
large installation projects, with contracts generally in the multi-million
dollar range, in connection with construction of industrial facilities,
institutional and public works projects, commercial buildings and large blocks
of space within commercial buildings; (2) smaller system installations involving
renovation and retrofit work; and (3) maintenance and service.
The MES Companies' largest installation projects have included those (i)
for industrial and institutional use (such as manufacturing, pharmaceutical and
chemical plants, refineries, research facilities, water and wastewater treatment
facilities, hospitals, correctional facilities, schools, trading floors,
computer facilities and mass transit systems), (ii) for commercial use (such as
office buildings, convention centers, shopping malls, hotels and resorts) and
(iii) for electrical utilities. These can be multi-year projects ranging in
size up to, and occasionally in excess of, $50 million. The MES Companies also
install and maintain street, highway, bridge and tunnel lighting, traffic
signals, computerized traffic signal control systems and signal control and
communication systems for mass transit in several metropolitan areas.
Major projects are performed pursuant to contracts with owners, such as
corporations and municipalities and other governmental entities, general
contractors, construction managers, as agents for owners of construction
projects, owner-developers and tenants of commercial properties. Institutional
and public works projects are frequently long-term, complicated projects
requiring significant technical skills and financial strength to obtain the bid
and performance bonds that are often a condition to the award of contracts for
such projects.
Smaller projects, which are generally completed in less than a year,
involve the provision of conventional mechanical and electrical services in
industrial plants, office buildings and commercial and retail space in which the
MES Companies install electrical fixtures, provide electrical and air
conditioning systems for computer facilities, and install smaller heating, air
conditioning, and plumbing systems for office and renovation projects. In this
area, the MES Companies are not necessarily dependent upon new construction;
demands for their services are frequently prompted by the expiration of leases,
changes in technology and changes in the customer's plant or office layout in
the normal course of business.
The MES Companies also perform maintenance and service work, under contract
or on an on-call basis, for exterior and interior lighting systems and for air
conditioning and heating systems in plants and other large facilities, office
buildings and commercial enterprises. The MES Companies also install
refrigeration systems for restaurants, office cafeterias and supermarkets.
Contracts for maintenance of mechanical and electrical systems range from one to
several years and are billed on a time and materials basis or a fixed fee plus
the cost of materials. In many of the buildings in which the MES Companies
maintain lighting systems, they also install fixtures, move outlets, rewire and
perform other routine electrical work. Maintenance and service operations often
require a number of employees to be permanently located at the building or
facility served.
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In addition, the MES Companies operate fully equipped sheet metal
fabrication facilities in the United States, providing and installing sheet
metal for both their own mechanical services businesses and unrelated mechanical
contractors; they also maintain welding and piping fabrication shops for their
own mechanical operations.
Backlog. The MES Companies had a backlog as of December 31, 1994 of
approximately $1,145 million compared with a backlog of approximately $1,045
million as of December 31, 1993 and approximately $1,600 million as of December
31, 1992. Approximately $1,054 million of the December 31, 1994 backlog relates
to mechanical and electrical subsidiaries which the Company currently intends to
retain. Certain MES Companies experienced a reduction in their backlog
principally because of the Company's weakened financial condition, which
adversely affected their ability to obtain new contracts, and by reason of the
continuing recession in the United States and international construction
markets. In addition, one surety company that had provided performance and
payment bonds for the Dynalectric Companies referred to below (which
subsidiaries accounted for approximately 21% of EMCOR's total consolidated
revenues for the year ended December 31, 1994) withdrew from that business in
January 1994. Performance and payment bonds provided by surety companies are
frequently a precondition to the awarding of a mechanical or electrical services
contract. The Company entered into an arrangement in November 1994 with a new
bonding company, under which bonds are now being made available to this group of
subsidiaries.
Employees. The MES Companies presently employ approximately 14,000 people,
approximately 77% of whom are represented by various unions. The Company
believes that its employee relations are generally satisfactory.
Competition. The business in which the MES Companies engage is extremely
competitive. They compete with national, regional and local companies.
However, the Company believes that, at present, it is the largest mechanical and
electrical services company in the United States and Canada and one of the
largest in the United Kingdom. Many of the MES Companies compete on the basis
of the quality of service, price, performance and reliability. Their
competitive position has been adversely affected by the Company's weakened
financial condition, among other things, inasmuch as their surety companies have
become more selective in issuing bonds, especially on larger, longer duration
projects.
SUPPLY OF WATER
Jamaica Water Supply Company ("JWS") (substantially all the common stock of
which is owned by the Company) and Sea Cliff Water Company ("Sea Cliff") (all
the capital stock of which is owned by JWS) (sometimes referred to herein
collectively as the "Water Companies") are regulated public utilities that own
and operate water supply systems on Long Island, New York. JWS, the largest
investor-owned water utility in New York State, supplies water to a densely
populated residential area of approximately 40 square miles in the Borough of
Queens in The City of New York (the "City") and in southwestern Nassau County,
an area with an aggregate population of approximately 650,000. Sea Cliff
supplies water to a four square mile area on the north shore of western Nassau
County with a population of approximately 20,000. The business of the Water
Companies consists of the purification, distribution and sale of water for
residential and commercial purposes including water used for fire sprinkler
systems service and public protection fire service. The Water Companies had
total revenues of approximately $66.8 million (approximately 2% of EMCOR's total
consolidated revenues) in 1993 and approximately $65.0 million (approximately 4%
of EMCOR's total consolidated revenues) in 1994.
As of December 31, 1994, the Water Companies provided potable water to
approximately 122,000 water service accounts, substantially all of whom are
metered and billed for the amount of water actually used, and approximately
1,000 private fire protection accounts for sprinkler connections billed on a
flat rate basis.
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The Water Companies' primary sources of water are ground water from wells
located in the New York counties of Queens and Nassau and surface water obtained
from the City. JWS has 93 wells on 60 well sites, of which 67 wells are
currently operable, and Sea Cliff has two wells on two sites, both of which are
currently operable. Where appropriate, JWS has installed treatment facilities
at well sites to remove volatile organic compounds prior to the water entering
the distribution system.
In an effort to reduce the cost of water to City residents, the City
provides JWS with an exemption from the City's real property taxes and makes
direct revenue support payments to JWS for water service. JWS also has an
agreement with the City to purchase up to 50 million gallons of water daily from
the City (to the extent available) at a cost of $1 per million gallons; however,
JWS expects to purchase only approximately 30 million gallons daily. The $1 per
million gallons rate is substantially less than both JWS' cost to pump and treat
water from its wells and the City's rate for commercial customers. The
agreement expires June 30, 1998, although it is cancellable by either party on
two years notice. The 30 million gallons of water JWS expects to purchase daily
from the City constitutes approximately 60 percent of the average daily amount
of water presently distributed by JWS to its customers in Queens County. JWS
customers in Nassau County are served entirely from wells owned and operated by
JWS.
The Water Companies are subject to regulation by the Public Service
Commission of the State of New York (the "Public Service Commission"). Since
the population of the areas served by the Water Companies has been relatively
stable, the amount of water consumed by their customers has not increased and is
not expected to increase in any significant respect. Consequently, cost
increases due to inflation or otherwise must be recovered through operating
efficiencies or increases in rates which are subject to approval of the Public
Service Commission. Until 1992, the Water Companies had traditionally filed for
rate increases on an annual basis and had received approvals of rate increases
from the Public Service Commission enabling them to maintain satisfactory
operating results. Pursuant to a settlement agreement with respect to certain
rate related proceedings, which agreement became effective February 2, 1994, JWS
has agreed that, subject to specified limited exceptions, it will not seek to
have a general rate increase become effective prior to January 1, 1997. JWS is
also a party to a certain condemnation proceeding. See "Legal Proceedings--
Jamaica Water Supply Company Rate Related Proceedings and Related Litigation"
and "New York City Condemnation Proceeding."
The Water Companies are also subject to regulation by various federal,
state and local agencies, including the Department of Environmental Conservation
of the State of New York, the New York State and New York City Departments of
Health, the New York City Department of Environmental Protection, the Nassau
County Department of Health and the United States Environmental Protection
Agency. The Company believes that the Water Companies are in compliance with
all applicable Federal, state and local laws and regulations.
The Company has determined to sell the Water Companies as part of its
Restructuring plan. See "The Restructuring and Chapter 11 Proceeding."
OTHER NON-CORE BUSINESSES
Information Services. The Company's former Information Services Group
("IS") was principally engaged in providing computer and systems integration
services. It sold integrated multi-vendor personal computer related products and
services for medium and large sized companies and other organizations. In 1992,
IS had total revenues of approximately $1.7 billion. In March 1993, the Company
determined to dispose of its domestic IS business as part of its Restructuring.
In August 1993, the Company sold substantially all the assets of its U.S.
information services subsidiary to ENTEX Information Services, Inc. ("ENTEX"), a
newly organized company owned by a private investor and the management of the
U.S. information services subsidiary. As part of the consideration for its
sale, the Company's subsidiary received warrants to buy up to 10% of the
purchaser's common stock for a nominal amount. Additionally,
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ENTEX assumed substantially all the debt and other liabilities and obligations
relating to the ongoing operations of the U.S. information services subsidiary;
that subsidiary retained certain lease obligations and certain tax liabilities.
The Company was also released from approximately $210 million of its guarantees
of indebtedness and similar obligations of the subsidiary. In October 1993,
that subsidiary filed a voluntary petition under Chapter 7 of the U.S.
Bankruptcy Code. During the period April 1993 through January 1994, the Company
sold, in separate transactions, its information services businesses in Canada,
the United Kingdom, Japan and Germany. The Company also carried on similar
information services businesses in France and Belgium. In 1993, the French and
Belgian businesses filed petitions in their respective countries' courts seeking
relief from their creditors. These businesses are in the process of being
liquidated.
Telephone Systems. The Company sold its telephone systems business in
November 1994 for approximately $11 million. This business was engaged in the
design, sale, installation and servicing of telecommunication systems, including
LEXAR PBX telephone systems which the Company manufactured. These systems are
used to interconnect business and institutional users with telephone lines of
the regulated telephone companies. In 1993, this telephone systems business had
total revenues of approximately $49 million and in 1994 had total revenues of
approximately $43 million.
Other. In addition to the sale of certain mechanical and electrical
services business units contemplated by its Restructuring plan, the Company has
sold certain other non-core businesses and intends to dispose of the balance of
its non-core businesses. The non-core business units that continue to be held
for sale are principally the Water Companies and the Company's remaining energy
and environmental related businesses.
The Company's principal remaining energy and environmental related business
constructs, operates and maintains co-generation facilities for use in steam
enhanced oil recovery processes, industrial plants, hotels, universities,
hospitals and shopping centers. EMCOR, through its subsidiaries, has built 16
co-generation facilities, operates 6 of them and owns, in whole or in part, 3 of
them. The EMCOR subsidiary which owns co-generation facilities supplies utility
services to its customers under long-term contracts. The other energy and
environmental related business unit collects methane gas at a landfill for
conversion into electrical energy which is sold to a utility.
THE RESTRUCTURING AND CHAPTER 11 PROCEEDING
BACKGROUND OF THE RESTRUCTURING
For the year ended December 31, 1992, EMCOR incurred a net loss of
approximately $600 million and negative cash flow from operations of
approximately $50 million. These losses and the negative cash flow were brought
on by several circumstances, including rapid technology changes and price wars
in the IS business, the costs of integrating numerous acquired MES and IS
business units, and weakened economic conditions in the United States, Canada
and the United Kingdom, particularly in the construction industry, all of which
combined to depress EMCOR's operating margins and to create a liquidity crisis.
Consequently, EMCOR was unable to obtain an increased revolving credit facility
in the summer of 1992. From September 1992 until February 14, 1994, when EMCOR
filed a consent to an involuntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code that had been filed against EMCOR on
December 21, 1993, EMCOR did not have available undrawn credit facilities, and
cash flow from operations was insufficient to meet EMCOR's debt service
obligations and working capital requirements. Accordingly, EMCOR funded its
operations from working capital and the proceeds of sales of business units and
other assets. Shortly after EMCOR consented to the order for relief, EMCOR and
substantially all of its domestic subsidiaries, as guarantors, entered into a
$35.0 million debtor-in-possession credit facility (the "DIP Loan") with Belmont
Capital Partners II, L.P. ("Belmont") which provided cash for EMCOR's working
capital requirements.
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In the second half of 1992, EMCOR developed an asset disposition program to
sell certain operations that were determined to be non-core to its MES and
domestic IS businesses. It was subsequently determined that the Water Companies
which had been identified for sale would not be sold due to uncertainties caused
by certain rate-related proceedings and litigation. See "Legal Proceedings -
Jamaica Water Supply Company." As part of its ongoing Restructuring plan, since
1992 EMCOR has sold more than twenty businesses and certain other miscellaneous
assets, the proceeds of which were used to repay certain indebtedness of the
Company and for working capital. In March 1993, EMCOR's Board of Directors
concluded that the personal computer industry did not provide the stable
operating environment that EMCOR needed to restructure, and the decision was
made to sell the domestic IS business. Also, the uncertainties regarding the
Water Companies were resolved in February 1994, and thereafter EMCOR decided to
proceed with the sale of the Water Companies.
In 1993, EMCOR's liquidity worsened. This cash drain was a result of
weakened operating performance, the required infusion of working capital into
operating units, unusual legal, accounting and financial advisory fees, and the
funding of a cash escrow account to provide collateral for payment of claims
under EMCOR's partial self-insurance program, which was required because of
EMCOR's inability to obtain letters of credit for this purpose.
In August 1993, EMCOR concluded that it should be reorganized around a
smaller domestic and international MES business that would be less volatile,
require less capital and bonding, be easier to control and manage and result in
significantly lower overhead costs. A number of factors were considered in
determining which MES units to retain and which to sell. Subsidiaries that were
to be retained generally had lower bonding and capital requirements, generated
better cash flow from recurring maintenance and service revenues to service
EMCOR's debt, operated in markets where growth potential existed, had the
management infrastructure to support systems and offered the opportunity for
growth and for better returns on net assets. EMCOR determined that the
international MES companies should be retained to provide access to markets
which could provide better margins and serve as a buffer from U.S. business
cycles.
In the fall of 1993, EMCOR announced that it had reached an agreement in
principle with holders of its senior debt to restructure its business and
capitalization and, subject to documentation of such agreement, intended to file
a prepackaged plan of reorganization. However, on December 21, 1993, an
involuntary petition for a reorganization under Chapter 11 of the United States
Bankruptcy Code, 11 U.S.C. (S) 101 et seq. ("Bankruptcy Code") was filed against
EMCOR in the United States Bankruptcy Court for the Southern District of New
York ("Bankruptcy Court") by three subordinated debenture holders. On February
14, 1994, EMCOR filed a consent to the involuntary petition and an order for
relief was entered. Under Sections 1107 and 1108 of the Bankruptcy Code, EMCOR
continued to operate its businesses as a debtor-in-possession and filed the Plan
of Reorganization on August 9, 1994. The Plan of Reorganization as amended was
confirmed by order of the Bankruptcy Court dated September 30, 1994 (the
"Confirmation Order"). The Confirmation Order was subsequently amended on
December 8, 1994 and a post-confirmation modification of the Plan of
Reorganization was entered on December 13, 1994.
PLAN OF REORGANIZATION
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued,
or reserved for issuance, to prepetition creditors of EMCOR (other than holders
of EMCOR's subordinated debentures and notes), in exchange for approximately
$525.7 million of EMCOR senior bank and institutional indebtedness and
substantially all other general unsecured claims (both allowed and disputed)
against EMCOR, and to Belmont, which made the DIP Loan, as Additional Interest
(as defined herein), the following securities: (i) 9,424,083 shares of newly
authorized common stock of the Company ("New Common Stock") (constituting 100%
of the issued and outstanding shares as of the Effective Date); (ii)
approximately $62.2 million principal amount of 7% Senior Secured Notes, Series
A, due 1997 of the
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Company ("Series A Notes") and $8.8 million additional principal amount of
Series A Notes which are reserved for issuance to holders of general unsecured
claims and to Belmont upon resolution of disputed and unliquidated prepetition
general unsecured claims (assuming such claims are ultimately allowed in full);
(iii) approximately $11.9 million principal amount of 7% Senior Secured Notes,
Series B, due 1997 ("Series B Notes"); (iv) approximately $62.8 million
principal amount of 11% Notes, Series C, due 2001 of the Company ("Series C
Notes"); and (v) approximately $48.1 million principal amount of 12%
Subordinated Contingent Payment Notes due 2004 of SellCo (the "SellCo Notes").
The entire $11.9 million principal amount of Series B Notes and approximately
$4.1 million principal amount of the Series A Notes issued on the Effective Date
were immediately redeemed on that date at their face amount in accordance with
their terms from the proceeds realized from the sale and liquidation of certain
subsidiaries, the stock of which would have been pledged as part of the
collateral securing the Series B Notes had such subsidiaries not been sold (and
an additional $600,000 of such proceeds was reserved for prepayment of certain
of the Series A Notes reserved for disputed and unliquidated claims). The
Series A, Series B, Series C and SellCo Notes are hereinafter collectively
referred to as the "New Notes." See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a description of the principal terms of the New Notes.
In accordance with the Plan of Reorganization, SellCo was organized as a
wholly-owned subsidiary of EMCOR for the purpose of holding the shares of
capital stock of all subsidiaries of EMCOR that are earmarked for sale or
liquidation, other than five other EMCOR subsidiaries (the "Other Non-Core
Subsidiaries") also earmarked for sale or liquidation. The net proceeds
realized from the sale of the stock or assets of the SellCo Subsidiaries ("Net
Sales Proceeds") and the Other Non-Core Subsidiaries are required to be applied
first to the prepayment of the Series A Notes (subject to the rights of the
Lenders under EMCOR's New Credit Agreements discussed below under "New Credit
Facility" to receive the first $15.0 million of proceeds of the sale of stock or
assets of the Water Companies). Thereafter, Net Sales Proceeds are to be
applied to the prepayment of the SellCo Notes. Neither EMCOR nor any of its
subsidiaries has guaranteed payment of the SellCo Notes. However, in accordance
with the Plan of Reorganization, EMCOR has issued to SellCo its 8% senior
promissory note in the principal amount of approximately $5,464,000 (the "EMCOR
Supplemental SellCo Note") which matures on the earlier of (i) the tenth
anniversary of the Effective Date or (ii) one day prior to the date on which the
SellCo Notes are deemed cancelled as described in the following sentence. If at
any time after the fifth anniversary of the Effective Date and prior to the
maturity date of the SellCo Notes the value of the consolidated assets of SellCo
and its subsidiaries (excluding the EMCOR Supplemental SellCo Note) is
determined by independent appraisal to be less than $250,000, the balance of the
SellCo Notes (not theretofore paid from Net Sales Proceeds and the proceeds of
the EMCOR Supplemental SellCo Note which will have become due and payable) will
be deemed cancelled. Thus, EMCOR's liability with respect to the SellCo Notes
is limited to the $5,464,000 principal amount of, plus accrued interest on, the
EMCOR Supplemental SellCo Note. Interest on the EMCOR Supplemental SellCo Note
is payable in cash upon maturity.
The terms of the New Notes, copies of which together with their related
Indentures are filed as Exhibits to this Registration Statement and incorporated
herein by reference, have been designed to minimize the Company's cash flow
requirements for debt service following the Effective Date. Interest on all of
the New Notes is payable only by the issuance of additional New Notes until
their maturity, in the case of the Series A Notes and SellCo Notes, and for the
period of 18 months from the Effective Date, in the case of the Series C Notes.
The New Notes do not require any amortization of principal prior to their
maturity, except in the case of the Series A Notes and the SellCo Notes to the
extent of proceeds from the sale of net assets not required to be applied to the
prepayment of loans outstanding under the New Credit Agreements discussed below
under "New Credit Facility" and except in the case of the Series A Notes that an
additional approximately $5.9 million principal amount of Series A Notes (less
any additional prepayments) is required to be redeemed on the second anniversary
of the Effective Date. In addition, if EMCOR sells certain securities or has
Excess Cash (as defined), it must apply such proceeds to prepayment of the
Series A Notes.
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The Amended and Restated Certificate of Incorporation of EMCOR filed on
December 15, 1994 pursuant to the Plan of Reorganization authorizes a single
class of 13,700,000 shares of New Common Stock, of which (i) 9,000,000 shares
have been or will be issued pursuant to the Plan of Reorganization to
prepetition creditors of EMCOR (other than holders of EMCOR's subordinated
debt); (ii) 1,000,000 shares have been reserved for issuance under the Company's
1994 Management Stock Option Plan, (iii) 1,450,000 shares have been reserved for
issuance upon exercise of the New Warrants (as defined below) issued pursuant to
the Plan of Reorganization as described below; (iv) 424,083 shares have been
issued to Belmont as Additional Interest as described below; (v) 56,544 shares
have been reserved for issuance upon exercise of the New Warrants issued to
Belmont as Additional Interest; and (vi) 200,000 shares have been reserved for
issuance under the Company's 1995 Non-Employee Directors' Non-Qualified Stock
Option Plan.
Pursuant to the Plan of Reorganization, the Company issued or will issue to
the holders of $7,040,000 principal amount of its prepetition 7-3/4% Convertible
Subordinated Debentures due 2012 and $9,600,000 principal amount of its
prepetition 12% Subordinated Notes due 1996, their pro rata share of each of two
series of five-year warrants to purchase shares of New Common Stock, namely,
600,000 Series X Warrants and 600,000 Series Y Warrants (which together with the
Series Z Warrants described below are referred to herein as the "New Warrants"),
with an exercise price of $12.55 per share and $17.55 per share, respectively.
In addition, the Company issued or will issue to prepetition holders of other
contingent and statutory subordinate claims and to holders of EMCOR's
prepetition common stock, preferred stock and warrants of participation, as well
as to the plaintiffs in a shareholder class action lawsuit, their pro rata share
of 250,000 Series Z Warrants to purchase shares of New Common Stock, which
Series Z Warrants have an exercise price of $50 per share and must be exercised
within two years of their issuance.
The Plan of Reorganization also authorized the issuance of additional
Series A, Series B, Series C and SellCo Notes, New Common Stock and New Warrants
to Belmont, the debtor-in-possession lender to the Company, in respect of
additional interest required to be paid under the terms of the Company's DIP
Loan. The Company agreed, upon the making of the DIP Loan by Belmont, that
Belmont would be entitled to "Additional Interest" upon the maturity of the loan
which, depending on the length of time the loan was outstanding, could have
ranged from 1% to 5.5% of each type of consideration issued pursuant to the Plan
of Reorganization. The actual Additional Interest paid or payable to Belmont
was 4.5% of each type of security issued pursuant to the Plan of Reorganization;
the Additional Interest amount paid or payable to Belmont presently consists of
approximately (i) $2.8 million of Series A Notes, (ii) $2.8 million of Series C
Notes, (iii) $2.2 million of SellCo Notes, (iv) 424,000 shares of New Common
Stock and (v) $535,000 in cash in lieu of Series B Notes which would have been
issued to Belmont as Additional Interest had the Series B Notes not been
redeemed on the Effective Date. In addition, it is estimated that an additional
$100,000 of Series A Notes will be issued to Belmont as Additional Interest upon
the resolution of disputed claims. Approximately 28,000 Series X Warrants,
28,000 Series Y Warrants and 12,000 Series Z Warrants will also be issued to
Belmont as Additional Interest.
MANAGEMENT INCENTIVES
Pursuant to the Plan of Reorganization, the Company adopted the 1994
Management Stock Option Plan (the "1994 Plan") as of the Effective Date to
foster and promote the long-term financial success of the Company following its
emergence from its Chapter 11 proceeding by promoting an equity incentive to
executive officers and a select group of key employees. The 1994 Plan provides
for the grant of options ("New Stock Options") to acquire up to 1,000,000 shares
of New Common Stock to eligible participants. Frank T. MacInnis, President and
Chief Executive Officer of the Company, received an option to purchase 200,000
shares of New Common Stock under the 1994 Plan pursuant to his employment
agreement with the Company dated April 18, 1994. The 1994 Plan is conditioned
upon approval by the stockholders of EMCOR. See Item 6, Executive Compensation
----------------------
- - "Employment Contracts and Termination of Employment and Change of Control
Arrangements" and "1994 Management Stock Option Plan" below.
-8-
<PAGE>
STRUCTURE OF EMCOR
After completing the asset sales which are an integral part of the
Restructuring, EMCOR will be a smaller company, although remaining international
in scope, engaged principally in the MES business. EMCOR's corporate
headquarters are located in Norwalk, Connecticut. The Norwalk corporate
headquarters focuses on corporate direction and strategy, handles the legal and
financial requirements for EMCOR, and provides financial reporting, risk
management, treasury, tax, and human resources policy and compliance functions
and financial and operating controls. The Norwalk office also oversees the
management of the businesses earmarked for sale and manages the sale process.
The corporate structure of EMCOR reflects the purposes of the
Restructuring. EMCOR continues to be a holding company, the principal direct
subsidiaries of which are (i) MES Holdings Corporation ("MES Holdings"), a
holding company for all MES operating subsidiaries (other than the Dynalectric
Companies) which are to be retained by EMCOR, (ii) Dyn Specialty Contracting
Inc., which with its five subsidiaries (collectively, the "Dynalectric
Companies") consists of a group of mechanical and electrical companies which are
also to be retained by EMCOR but were not transferred to MES Holdings in order
to accommodate the surety company providing performance and payment bonds for
the Dynalectric Companies, (iii) SellCo, the holding company for most of the
other subsidiaries of EMCOR, direct or indirect, which constitute substantially
all businesses offered for sale by EMCOR, and (iv) the five Other Non-Core
Subsidiaries which are also being liquidated or held for sale. The North
American MES business continues to operate on a decentralized basis, with day-
to-day operations managed by the business units. EMCOR's European, Middle
Eastern and Far Eastern operations are managed by Drake & Scull, a subsidiary of
MES Holdings, which has its corporate office in London.
1. MES Holdings. The following table lists the names, principal markets
and principal business of the principal MES units which are to be retained by
EMCOR through its ownership of MES Holdings Corporation.
<TABLE>
<CAPTION>
Name Market Principal Business
- ---- ------ ------------------
<S> <C> <C>
Comstock Canada........................... Canada Mechanical/Electrical
Hyre Electric Co. of Indiana, Inc......... Mid-West Electrical
Forest Electric Corp...................... New York City Electrical
Gibson Electric Company, Inc.............. Chicago/MidWest Electrical
Gowan, Inc................................ Southwest Mechanical
Hansen Mechanical Contractors, Inc........ Las Vegas Mechanical
Heritage Air Systems, Inc................. New York Mechanical
J.C. Higgins Corp......................... Boston Mechanical
Penguin Air Conditioning Corp............. New York City Mechanical
The Drake & Scull Companies............... United Kingdom/ Mechanical/Electrical
Middle East/
Far East
Trautman & Shreve, Inc.................... Denver Mechanical
University Mechanical and Engineering National Mechanical
Contractors..............................
Welsbach Electric Corp.................... New York City Electrical
Zack Power and Industrial Company......... Mid-West and East Boiler/Mechanical
</TABLE>
-9-
<PAGE>
2. Dynalectric Companies. The following table lists the names, principal
markets and principal business of the Dynalectric Companies which are also to be
retained by EMCOR.
<TABLE>
<CAPTION>
Name Market Principal Business
- ---- ------- ------------------
<S> <C> <C>
Dyn Specialty Contracting, Inc.* National Electrical
Dynalectric Company National Electrical
Dynalectric Company of Nevada, Inc. Nevada Electrical
Contra Costa Electric, Inc. Northern California Electrical
Kirkwood Electric Company Los Angeles Electrical
</TABLE>
- --------------------
* Dyn Specialty Contracting, Inc. is a direct wholly owned subsidiary of
EMCOR and owns all of the capital stock of the other Dynalectric Companies.
NEW CREDIT FACILITY
On December 14, 1994, the Company and certain of its subsidiaries entered
into two Credit Agreements with Belmont and other lenders (collectively, the
"Lenders") providing the Company and certain of its subsidiaries with working
capital facilities up to an aggregate of $45 million which became available upon
the Effective Date. The Lenders include Albert Fried & Co., a broker/dealer
firm of which Albert Fried, a Director of the Company, is the Managing Partner,
and Kevin C. Toner, a Director of the Company. See Item 7. "Certain
Relationships and Related Transactions." One of the Credit Agreements is among
the Company, MES Holdings, certain direct and indirect subsidiaries of MES
Holdings (the "MES Subsidiaries"), as Guarantors, and the Lenders (the "MES
Credit Agreement") and provides the Company and MES Holdings with revolving
credit loans (the "MES Loans") in an aggregate amount that shall not exceed at
any time $35 million. The other Credit Agreement is among the Company, Dyn
Specialty Contracting, Inc. ("Dyn"), the subsidiaries of Dyn (the "Dyn
Subsidiaries"), as Guarantors, and the Lenders (the "Dyn Credit Agreement", and
together with the MES Credit Agreement, the "New Credit Agreements") and
provides Dyn with revolving credit loans (the "Dyn Loans", and together with the
MES Loans, the "Loans") in an aggregate amount that shall not exceed at any time
$10 million. The Loans bear interest on the principal amount thereof at the
rate of 15% per annum, and mature on the date which is eighteen months after the
date of the New Credit Agreements.
The MES Loans are guaranteed by the U.S. MES Subsidiaries and are secured
by, among other things, substantially all of the assets of the Company, MES
Holdings and the U.S. MES Subsidiaries, including their respective accounts
receivable, inventories, general intangibles and equipment and the capital stock
of the U.S. MES Subsidiaries (but not the stock of MES Holdings, Dyn, SellCo,
SellCo's Subsidiaries or the Other Non-Core Companies) and the proceeds of the
sale of stock or assets of the Water Companies to the extent of the first $15
million of such proceeds, subject to the rights to such proceeds of the Lenders
under the Dyn Credit Agreement. The Dyn Loans are guaranteed by the Dyn
Subsidiaries and are secured by substantially all of the assets of Dyn and the
Dyn Subsidiaries, including their respective accounts receivable, inventories,
general intangibles and equipment and the capital stock of Dyn and the Dyn
Subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15 million of such proceeds, subject to
the rights to such proceeds of the Lenders under the MES Credit Agreement. The
Dyn Loans are also secured by the collateral securing the MES Loans, subject to
the rights to such collateral of the Lenders under the MES Credit Agreement.
The proceeds of the MES Loans were used to repay amounts under the DIP Loan
and to pay fees and expenses in connection with the MES Loans and the Plan of
Reorganization and will be used
-10-
<PAGE>
for the general working capital of MES Holdings, the MES Subsidiaries and the
Company. The proceeds of the Dyn Loans were used to pay fees and expenses in
connection with the Dyn Loans and will be used for the general working capital
of Dyn and the Dyn Subsidiaries.
Each of the New Credit Agreements contains various affirmative and negative
covenants. The negative covenants limit the Company's, MES Holdings', Dyn's and
their subsidiaries' ability to take certain actions without the Lenders'
approval. Such actions include, among other things: (i) merger or
consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon
their property, (iv) making of loans, investments or guarantees and (v) transfer
of assets. The negative covenants require MES Holdings, Dyn and their
subsidiaries to maintain their backlogs and work-in-progress at not less than
specified levels and to prevent their losses from operations from exceeding
specified amounts in any month. The MES Credit Agreement also requires the
Company, MES Holdings, Dyn and their subsidiaries to maintain certain financial
coverage ratios.
-11-
<PAGE>
ITEM 2. FINANCIAL INFORMATION
---------------------
SELECTED HISTORICAL FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements, the related notes thereto and the independent
auditors' reports thereon, included elsewhere in this Registration Statement.
See Note A to the Consolidated Financial Statements regarding the basis of
presentation, pre-consent date bankruptcy claims subject to compromise and the
Company's emergence from bankruptcy.
-12-
<PAGE>
Income Statement Data (a)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,763,961 $2,194,735 $2,404,577 $2,318,112 $2,057,607
Gross profit 156,372 151,177 243,854 344,551 331,400
Reorganization Items 91,318 --- --- --- ---
(Loss) income from
continuing
operations
including
reorganization items (118,934) (113,991) (363,515) 4,712 28,649
Income (loss) from
discontinued
operations 10,216 (9,087) (253,230) 24,263 21,600
Extraordinary Item -
gain on debt
discharge 413,249 --- --- --- ---
Cumulative effect of
change in method
of accounting:
-Income taxes --- --- 4,315 --- ---
-Post-employment
benefits (2,100) --- --- --- ---
------------------------------------------------------------------------------
Net income (loss) $ 302,431 $ (123,078) $ (612,430) $ 28,975 $ 50,249
==============================================================================
Supplemental Net
income (loss) per
share (b):
Continuing operations $ (12.62)
Discontinued
operations 1.08
Extraordinary Item -
gain on debt
discharge 43.85
Cumulative effect of
change in method of
accounting:
-Post-employment
benefits (0.22)
---------------
Net income per share $ 32.09
===============
</TABLE>
-13-
<PAGE>
Balance Sheet Data
<TABLE>
<CAPTION>
As of December 31,
1994 1993 1992 1991 1990
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shareholders' equity
(deficit)(c) $ 81,130 $(302,262) $(175,979) $ 456,136 $ 370,513
Total assets $707,498 $ 806,442 $ 907,584 $2,233,827 $1,476,012
Notes payable $ 4,803 $ 172 $ 6,452 $ 110,600 $ 62,500
Working capital credit
facilities $ 40,000 --- --- --- ---
7% Senior Secured Notes $ 55,401 --- --- --- ---
Long-term debt, including
current maturities $ 61,828 $ 4,465 $ 6,040 $ 463,071 $ 381,323
Debt in default --- $ 501,007 $ 501,007 --- ---
Capital lease obligations $ 2,029 $ 2,561 $ 3,935 $ 26,995 $ 29,973
Redeemable preferred stock --- --- --- $ 5,242 $ 5,771
</TABLE>
- ------------------------
(a) Income statement data has been reclassified for all periods presented to
reflect the Company's information services and water supply businesses as
discontinued operations (See Note P to the Consolidated Financial
Statements).
(b) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalized and adopted Fresh-Start Reporting
as of December 31, 1994.
(c) No cash dividends on the Company's common stock have been paid during the
past five years.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's new capital structure, as discussed below, is the result of
the consummation of its Plan of Reorganization. See "Selected Historical
Financial Data." Accordingly, the financial condition and results of operations
of the Company after giving effect to the Plan of Reorganization and the
transactions contemplated therein will not be comparable to the historical
financial condition or results of operations of the Company. The following
Management's Discussion and Analysis of the Company's historical financial
condition and results of operations should be read in light of the foregoing.
The Company, since 1992, has been experiencing losses and has been engaged
in an ongoing restructuring of its various businesses and recently reorganized
under Chapter 11 of the United States Bankruptcy Code. From August 1992 until
February 1994, when the Company obtained debtor-in-possession financing, the
Company did not have available credit facilities, and cash flow from operations
was inadequate to fund its operations and service its debts and other
obligations. Consequently, during that period, the Company had to fund its
operations from working capital and from the proceeds of sales of businesses and
other assets. On December 21, 1993, an involuntary petition for reorganization
under Chapter 11 was filed against the Company by three creditors. On February
14, 1994, the Company filed a consent to the involuntary petition and an order
for relief was entered.
On December 15, 1994, the Effective Date of its Plan of Reorganization,
EMCOR emerged from Chapter 11 pursuant to the Plan of Reorganization proposed by
the Company and its subsidiary SellCo. Under the Plan of Reorganization,
prepetition creditors of the Company (other than holders of subordinated debt)
received, in addition to certain notes of the Company and SellCo, substantially
all of the New Common Stock of the Company. The prepetition holders of the
Company's subordinated debt, common and preferred stock and warrants of
participation received warrants to purchase new common stock of the Company in
exchange for their debt and equity interests. At that time, the Company also
obtained new credit facilities. See "Liquidity and Capital Resources" for
additional discussion with respect to the Company's Plan of Reorganization and
new credit facilities.
Prior to the commencement and during the continuation of the Company's
Chapter 11 proceeding, the Company experienced significant constraints in its
surety bonding line that adversely affected its operations. The surety bonding
companies that provide bid and performance bonds for the Company have reviewed
and continue to review bond requests on a case-by-case basis. The Company's
surety bonding companies have become more selective in issuing bonds for large
construction projects, typically in excess of $10.0 million, and those with a
duration of more than three years. The surety bonding companies will generally
not bond new projects for non-core businesses that the Company intends to sell.
In addition, a surety bonding company that was a primary source of surety
bonds for the Dynalectric Companies terminated its surety business as of January
1994. As a result, these subsidiaries were without any surety bonding
facilities for most of 1994. In November 1994, the Company entered into an
arrangement with a new surety bonding company to provide surety bonds for the
Dynalectric Companies. For the year ended December 31, 1994, these subsidiaries
comprised approximately 21% of the revenues of the mechanical and electrical
subsidiaries the Company plans to retain. The absence of available surety
bonding for these subsidiaries resulted in a significant reduction in their
backlog, since surety bonds are frequently a condition to the award of a
mechanical or electrical contract. The new surety bonding arrangement should
allow these subsidiaries to obtain new contracts thereby increasing backlog.
-15-
<PAGE>
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1994 COMPARED TO
YEAR ENDED DECEMBER 31, 1993
Revenues for the years ended December 31, 1994 and 1993 were $1,764.0
million and $2,194.7 million, respectively. Net income for the year ended
December 31, 1994 was $302.4 million or $32.09 per share compared to a net loss
of $123.1 million for the year ended 1993. Net income for 1994 includes an
extraordinary item for the gain on debt discharge of $413.2 million as well as a
charge for the required adoption of Financial Accounting Standards No. 112
"Accounting For Post-Employment Benefits" of $2.1 million. In addition, net
income for 1994 includes charges for reorganization items totaling $91.3 million
consisting of professional fees of $12.5 million and fresh-start adjustments of
$78.8 million to record the Company's assets and liabilities at fair value in
accordance with the adoption of "Fresh-Start Reporting" as prescribed by AICPA
"Statement of Position 90-7 Financial Reporting by Entities under the Bankruptcy
Code".
Income from discontinued operations was $10.2 million for the year ended
December 31, 1994 compared to a loss of $9.1 million for the year ended December
31, 1993. The loss from discontinued operations for the year ended December 31,
1993 reflects a charge of $8.1 million related to an adjustment in the carrying
value of liabilities as a result of the bankruptcy filing under Chapter 7 of the
U.S. Bankruptcy Code by the Company's subsidiary that formerly carried on the
Company's U.S. information services business. The loss from discontinued
operations in 1993 also includes a charge of $7.4 million to write down the net
assets of the Company's water supply business to estimated net realizable value.
Loss from continuing operations before reorganization items, income taxes,
extraordinary items and cumulative effect of accounting change was $27.9 million
for the year ended December 31, 1994. The loss includes: a gain of $1.9
million for the settlement of a construction claim; a net gain of $1.2 million
on the sale of certain businesses; a loss of $4.5 million due to the write-down
of an investment; a loss of $10.8 million for the write-down on certain long-
term construction projects; a loss of $1.4 million for lender fees associated
with the Company's new working capital and debtor-in-possession credit
facilities; and a loss of $0.6 million for severance of certain employees. The
loss from continuing operations before income taxes for the year ended December
31, 1993 was $114.7 million which includes $50.2 million of interest expense
primarily for interest at default rates on debt in default.
The Company ceased accruing interest on debt in default in December 1993
upon the filing of an involuntary bankruptcy petition against the Company.
Accordingly, no interest expense on debt in default is included in the
Consolidated Statements of Operations for the year ended December 31, 1994.
The Company incurred an operating loss of $22.2 million for the year ended
December 31, 1994 compared with an operating loss of $65.5 million for the year
ended December 31, 1993. The operating loss for 1993 includes a $38.5 million
provision for estimated losses on uncompleted construction contracts and
approximately $12.0 million of legal, consulting and other professional fees
arising from the shareholder litigation and debt restructuring efforts.
Professional fees associated with the bankruptcy proceedings are classified as
"Reorganization Charges" in the 1994 Consolidated Statements of Operations.
MECHANICAL /ELECTRICAL SERVICES
Revenues of the mechanical/electrical services business units for the year
ended December 31, 1994 decreased by 19.6% to $1,764.0 million from $2,194.7
million for the year ended December 31, 1993. Operating losses of the
mechanical/electrical services business (before deduction of general corporate
and other expenses discussed below) for the years ended December 31, 1994 and
1993 were $6.4 million and $39.1 million, respectively. In connection with the
Company's restructuring plan, certain mechanical and electrical business units
have been sold or identified for sale. The operating
-16-
<PAGE>
results of these units are included in the operating results discussed herein.
Revenues of the mechanical/electrical units sold or held for sale for the years
ended December 31, 1994 and 1993 were $168.9 million and $354.6 million,
respectively. Such units incurred an operating loss of $13.7 million for the
year ended December 31, 1994 compared to an operating loss of $13.8 million for
1993.
The decrease in revenues for the year ended December 31, 1994 was partially
attributable to the disposition of certain businesses held for sale and the
downsizing of certain other businesses. Revenues for the year ended December
31, 1994 relating to businesses which the Company plans to retain, decreased by
approximately 13% when compared to 1993. This decrease resulted primarily from
those business units operating in the Western and Midwestern United States and
in Eastern Canada. These units experienced difficulties in obtaining new
construction contracts because of, among other things, continued poor market
conditions and the inability of the Dynalectric Companies to obtain surety bonds
to secure new work during most of 1994 because their surety bonding company
ceased to engage, as of January 1, 1994, in the business of issuing surety
bonds.
The operating results for the years ended December 31, 1994 and 1993
reflect, among other things, the continued negative impact of the recession in
the construction industry and oversupply in the commercial real estate market
which has caused intense competition for new commercial work. As a result of
the reduction of work in the commercial real estate market, many of the
Company's mechanical/electrical services business units pursued and secured work
in the institutional and public works markets, typically for federal, state and
municipal government agencies. This work was often characterized by lower
margins and different contract practices than in the commercial real estate
market. In addition, the continued recession in the construction industry
resulted in lower margins on all available work than had been obtained in
previous years. Certain of these business units had limited experience in these
institutional and public works projects, and, as a result, incurred losses,
particularly on certain large, long-term projects. Operating margins in 1994
and 1993 were also adversely affected by the continuing recessions in the United
Kingdom and Canada.
Selling, general and administrative ("SG&A") expenses, excluding general
corporate and other expenses, for the years ended December 31, 1994 and 1993
were $162.8 million and $190.3 million, respectively. The amount of SG&A
expenses for 1994 was lower than for the comparable period in 1993 as a result
of the implementation of the Company's downsizing plans and the disposition of
certain businesses.
At December 31, 1994, the mechanical/electrical services business backlog
was approximately $1,145.3 million compared to approximately $1,045.4 million at
December 31, 1993. Such backlog included $1,054.1 million at December 31, 1994
and $946.8 million at December 31, 1993 relating to companies which the Company
currently intends to retain. The Company's backlog in the United States
declined by $60.9 million between December 31, 1993 and December 31, 1994,
whereas its backlog in the United Kingdom and Canada increased by $145.7 million
and $22.5 million, respectively, during that same period. The Company's United
Kingdom and Canadian subsidiaries received major long-term contracts during the
second and third quarters of 1994. During the year ended December 31, 1994, the
Company experienced a reduction in backlog in the Western region of the U.S.
The decline was attributable to the downsizing of the Company's operations, the
Company's weakened financial condition which adversely affected its ability to
obtain new surety bonds and contracts and the inability of the Dynalectric
Companies to obtain surety bonds because their surety bonding company ceased to
engage, as of January 1, 1994, in the business of issuing surety bonds. In
addition, during that period the Company's surety bonding companies reviewed and
continue to review requests for surety bonds on a case-by-case basis. The
Company's surety bonding companies have become more selective in issuing surety
bonds for large construction projects, typically in excess of $10.0 million, and
those construction projects with a duration of more than three years. The
Company's surety bonding companies will generally not bond new projects for
certain non-core businesses which the Company has identified for sale. Surety
bonds are frequently a condition to the award
-17-
<PAGE>
of a mechanical or electrical contract. Prospects for a recovery in the
commercial office building market in both North America and the United Kingdom
remain poor for the immediate future.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the years ended December 31, 1994 and 1993
were $15.8 million and $26.4 million, respectively. General corporate expenses
for the year ended December 31, 1993 include approximately $12.0 million related
to legal, consulting and other professional fees arising from the shareholder
litigation, the debt restructuring and the restatement of the Company's 1991 and
1990 financial statements. Legal and other professional fees for 1994 incurred
as a result of the bankruptcy proceeding are reflected under the caption
"Reorganization Charges" in the Consolidated Statements of Operations. These
expenses for the year ended December 31, 1994 were approximately $12.5 million.
The higher amount of general corporate expenses, exclusive of legal, consulting
and other professional fees, in 1994 is attributable to debt issuance costs
related to the Company's debtor-in-possession credit facility and new working
capital credit facility, severance paid to terminated employees and an increase
in insurance costs. Net interest expense for the year ended December 31, 1994
was $2.5 million compared to $50.2 million in the year earlier period. The
Company ceased accruing interest expense related to debt in default on December
21, 1993, the date on which an involuntary bankruptcy petition was filed against
the Company.
DISCONTINUED OPERATIONS
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not
to proceed with the sale due to the then pending rate related proceedings and
litigation. In December 1993, the Company's subsidiary JWS entered into an
agreement that became effective on February 2, 1994 upon approval by the New
York State Public Service Commission, with respect to the rate related
proceedings and litigation thereby eliminating significant uncertainties
relating to the Company's water supply business. Accordingly, the Company
reinstated its plan of divestiture in the first quarter of 1994 and recently has
retained investment bankers to assist in the sale of its water supply business.
The Consolidated Financial Statements reflect the water supply business as a
discontinued operation for all periods presented. See Note X to the
Consolidated Financial Statements and "Legal Proceedings" regarding the
aforementioned rate related proceedings and litigation as well as the status of
a proceeding initiated in 1988 by The City of New York with respect to the
possible condemnation of the water distribution system of JWS that is located in
New York City and a proceeding initiated by holders of the Company's warrants of
participation.
In 1993, the Company sold substantially all of its information services
businesses.
Revenues and income from discontinued operations, excluding the $20.4
million loss from disposal of its information services businesses during 1993,
for the years ended December 31, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-----------------------------
Revenues: (Unaudited)
<S> <C> <C>
Water Supply $64,993 $ 66,755
Information Services - 876,700
-----------------------------
$64,993 $943,455
=============================
Net Income:
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C> <C>
Water Supply $10,216 $ 11,427
Information Services - (164)
-----------------------------
$10,216 $ 11,263
=============================
</TABLE>
The water supply business operating results are impacted by seasonal
factors. Its revenues are generally higher in the second and third quarters
which reflects the warmer weather conditions in the Northeast United States.
RESULTS OF OPERATIONS: 1993 COMPARED TO 1992 AND 1992 COMPARED TO 1991
Revenues for the years ended December 31, 1993, 1992 and 1991 were $2,194.7
million, $2,404.6 million and $2,318.1 million, respectively. The net loss for
the years ended December 31, 1993 and 1992 was $123.1 million or $3.06 per share
and $612.4 million or $15.13 per share, respectively, compared to net income of
$29.0 million or $0.73 per share in 1991. The Company's net loss from
continuing operations for the years ended December 31, 1993 and 1992 was $114.0
million or $2.84 per share and $363.5 million or $9.00 per share, respectively,
compared to net income from continuing operations of $4.7 million or $0.10 per
share in 1991.
The net loss or income from continuing operations for the years ended
December 31, 1993, 1992 and 1991 includes net interest expense of $50.2 million,
$44.2 million and $43.9 million, respectively. The increase in interest expense
in 1993 primarily reflects accruals for penalty interest on debt in default.
The net loss from continuing operations for the year ended December 31, 1993
includes a net gain on businesses sold or held for sale of $1.0 million. The
net loss or income from continuing operations for the years ended December 31,
1992 and 1991 includes losses on businesses sold and held for sale of $76.1
million and $6.6 million, respectively.
The net loss from discontinued operations for the years ended December 31,
1993 and 1992 was $9.1 million or $0.22 per share and $253.2 million or $6.24
per share, respectively, compared to net income of $24.3 million or $0.63 per
share in 1991. The loss from discontinued operations for the year ended
December 31, 1993 reflects a charge of $8.1 million related to an adjustment in
the carrying value of liabilities as a result of the bankruptcy filing under
Chapter 7 of the U.S. Bankruptcy Code by the Company's subsidiary that formerly
carried on the Company's U.S. information services business. The loss from
discontinued operations in 1993 also includes a charge of $7.4 million to write
down the net assets of the Company's water supply business to estimated net
realizable value.
The net loss in 1992 reflects (i) a continuing slump in the Company's
mechanical/electrical services business, principally attributable to a downturn
in commercial construction; (ii) intense competition in the Company's
information services business; (iii) restructuring charges related to the
planned disposition or downsizing of (a) the information services businesses,
(b) non-core businesses and (c) certain mechanical/electrical operations; (iv)
significant provisions for losses on accounts receivable and inventories; (v) a
provision for losses on net assets held for sale; and (vi) expenses associated
with the shareholder litigation, the Company's efforts to restructure its debt
through a consensual arrangement and the restatement of the Company's financial
statements.
A significant portion of the 1992 loss, particularly with respect to losses
on accounts receivable and write-down of inventories, arose as a result of
management's review conducted in connection with the preparation of the
Company's year end 1992 financial statements. As a result of such review, the
Company recorded significant write-offs and losses in 1992 for impairment of
goodwill and other intangibles, for the establishment of asset valuation and
restructuring reserves associated with net assets held for sale and as a result
of the decision to discontinue the information services business.
-19-
<PAGE>
The net loss for 1993 reflects the continued impact of the recession and
the downturn in commercial real estate construction both in North America and
the United Kingdom. The net loss includes a $38.5 million provision for
estimated losses on uncompleted construction contracts and approximately $12.0
million of legal, consulting and other professional fees arising from the
shareholder litigation and debt restructuring efforts. Additionally, the 1993
loss includes one-time charges to discontinued operations, discussed above, with
respect to the write-down of the net assets of the Company's water supply
business to estimated net realizable value and the loss related to the
bankruptcy filing of the Company's subsidiary which formerly carried on its U.S.
information services business.
SG&A expenses were $216.7 million in 1993, $440.7 million in 1992 and
$286.9 million in 1991. The higher amount of SG&A expenses in 1992 includes a
provision of $100.4 million for losses on accounts and other receivables (See
"Mechanical/Electrical Services" below), an increase in general corporate
expenses of $29.2 million and $13.6 million applicable to the write-off of
goodwill. General corporate expenses were $26.4 million in 1993 compared to
$48.4 million in 1992 and $19.2 million in 1991. (See "General Corporate and
Other Expenses"). A reduction of SG&A expenses was realized in 1993 as a result
of the implementation of the Company's restructuring.
MECHANICAL/ELECTRICAL SERVICES
Revenues of the mechanical/electrical services business units for the year
ended December 31, 1993 decreased 8.7% to $2,194.7 million from $2,404.6 million
in 1992. Revenues in 1991 were $2,318.1 million. Operating losses (before
deduction of general corporate and other expenses discussed below) for the years
ended December 31, 1993 and 1992 was $39.1 million and $187.2 million,
respectively, compared to operating income of $76.9 million for the year ended
December 31, 1991. In connection with the Company's restructuring plan, certain
mechanical/electrical business units have been sold or identified for sale. The
operating results of such business units are included in the aforementioned
operating results. Revenues of the mechanical/electrical business units sold or
held for sale for the years ended December 31, 1993, 1992 and 1991 were $354.6
million, $526.9 million and $501.7 million, respectively. For the years ended
December 31, 1993 and 1992, such business units had operating losses of $13.8
million and $41.2 million, respectively, compared to operating income of $15.3
million in 1991.
The operating results in both 1993 and 1992 reflect, among other things,
the continued negative impact of the recession in the construction industry and
oversupply in the commercial real estate market which has caused intense
competition for new commercial work. As a result of the reduction of commercial
work, many of the Company's mechanical/electrical services business units
pursued and secured work in the institutional and public works markets,
typically for federal, state and municipal government agencies. This work was
often characterized by lower margins and different contract practices than in
the commercial real estate market. In addition, the continued recession in the
construction industry resulted in lower margins on all available work than had
been obtained in previous years. Certain of these business units had limited
experience in these institutional and public works projects and, as a result,
incurred losses on certain large long-term contracts.
The operating loss in 1993 includes $13.0 million of losses incurred by the
Company's business units in the U.S. Midwest. Such losses primarily consist of
job write-downs and provisions for loss contingencies on certain completed large
industrial and municipal projects. In the fourth quarter of 1993, certain of
the Company's mechanical business units in its U.S. Western region recorded
charges of approximately $13.1 million for estimated losses on certain large
uncompleted municipal projects. The losses were primarily attributable to
adverse weather conditions, management turnover, inadequate estimating of job
costs and labor problems. Operating margins in 1993 were also adversely
affected by approximately $7.6 million of losses in the United Kingdom and
Canada. Such losses reflect, among other things, the continuing recessions in
the United Kingdom and Canada, downsizing costs in the United Kingdom and the
inadequacy
-20-
<PAGE>
of available bonding in Canada which has adversely affected the Canadian
subsidiary's ability to obtain new contracts.
The operating loss for the year ended December 31, 1992 includes a
provision for losses on accounts and other receivables of $100.4 million due in
part to the impact of the recession on the financial condition of customers of
the Company's mechanical/electrical services business units. Additionally, the
Company's financial condition and negative cash flow adversely impacted its
ability to settle claims and unapproved change orders on a favorable basis. The
operating loss for the year ended December 31, 1992 also includes restructuring
charges of $38.7 million for the downsizing of the Company's North America
mechanical/electrical services operations, $13.6 million applicable to the
write-off of goodwill and a charge of $15.6 million relating the write-off of
small tool inventory. Small tools are located at numerous construction sites and
generally have short lives. Accordingly, the Company made the decision to
write-off its small tool inventory because of the difficulty and expense
associated with taking periodic physical inventories required to maintain the
tools as an asset.
At December 31, 1993 the mechanical/electrical services business backlog
was $1.0 billion compared to $1.6 billion at December 31, 1992. The Company's
overall backlog in North America and in the United Kingdom has stabilized at
approximately $1.0 billion through September 1994. Such backlog included $946.8
million at December 31, 1993 and $1,263.0 million at December 31, 1992 relating
to companies which the Company currently intends to retain. A reduction in
backlog was experienced in each of the North American markets and in the United
Kingdom and is attributable to the downsizing of the Company's operations, the
Company's weakened financial condition which adversely affected its ability to
obtain new surety bonds and contracts and the continuing recessions in the North
American and overseas construction markets.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate and other expenses for the years ended December 31, 1993,
1992 and 1991 were $26.4 million, $48.4 million and $19.1 million, respectively.
Corporate expenses for the year ended December 31, 1993, include approximately
$12.0 million of expenses related to legal, consulting and other professional
fees arising from the shareholder litigation and the debt restructuring. The
higher amount of corporate expense for the year ended December 31, 1992 was
related primarily to (a) fees paid to lenders for extensions of, amendments to
and waivers of the Company's revolving credit agreement ($4.5 million), (b) the
write-off of deferred debt expense in connection with the Company's debt
restructuring ($2.9 million), (c) legal, consulting and other professional fees
arising out of shareholder litigation, defaults of covenants contained in loan
agreements, associated debt restructuring activities and the restatement of the
Company's 1991 and 1990 financial statements ($9.6 million), (d) the accelerated
vesting of deferred compensation as a result of the termination of employment of
certain officers ($5.6 million), (e) employee termination costs ($1.8 million),
(f) the write-off of leasehold improvements and abandonment of a lease ($4.2
million) in connection with the relocation of the corporate headquarters from
Purchase, New York to Rye Brook, New York.
DISCONTINUED OPERATIONS
The Consolidated Financial Statements reflect the water supply business as
a discontinued operation for all periods presented.
For the years ended December 31, 1993, 1992 and 1991 revenues of the water
supply business were $66.8 million, $59.8 million and $63.1 million,
respectively. The operating income for the years ended December 31, 1993, 1992
and 1991 were $15.4 million, $4.8 million and $14.6 million, respectively. The
operating results for the year ended December 31, 1992 included a charge of $7.0
million relating to the settlement of rate related proceedings and litigation.
See Note X to the Consolidated Financial Statements and "Liquidity and Capital
Resources."
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<PAGE>
On January 1, 1994, upon expiration of the then existing collective
bargaining agreement, the local collective bargaining unit (Local 374 of the
Utility Workers Union of America) representing 212 employees of JWS commenced a
strike against JWS. On March 27, 1994, the membership of the local collective
bargaining unit ratified a new five year collective bargaining agreement and
ended the work stoppage.
In March 1993 the Company's Board of Directors approved the disposition of
the Company's U.S. information services business which was sold in August 1993.
The Board of Directors had previously decided to sell the Company's overseas
information services businesses. Accordingly, operating results reflect the
information services businesses as discontinued operations. See Notes P and Q to
the Consolidated Financial Statements. Revenues of the information services
businesses were approximately $876.7 million, $1.7 billion and $1.2 billion in
1993, 1992 and 1991, respectively. Operating income of the information services
businesses in 1993 was $10.2 million compared to a loss from operations of
$187.9 million in 1992 and operating income of $34.0 million in 1991. The loss
in 1992 includes one-time charges of $67.3 million which consists of the write-
off of goodwill and other intangible assets related to the U.S. information
services business and costs attributable to employee severance and facilities
consolidation. The 1992 loss also reflects intense competition among personal
computer resellers, decreases in the prices of personal computers and the rapid
introduction of new technology. The difficulties encountered by the Company in
successfully integrating the back office operations and accounting systems of
Businessland Inc., which was acquired in August 1991, with the Company's
preexisting information services back office operations resulted in additional
losses. In 1993, the Company sold substantially all the assets of its U.S. and
foreign information services subsidiaries. See "Liquidity and Capital Resources"
for additional information with respect to the disposition of the U.S.
information services subsidiary.
In connection with the plan to dispose of the Company's foreign information
services businesses and certain of its U.S. information services units, the
Company provided for losses aggregating $49.5 million in 1992. These charges
primarily represented the estimated losses to be realized upon the disposition
of such business units in 1993. Such amount is in addition to the
aforementioned loss from operations of $187.9 million and is included in the
accompanying Consolidated Statements of Operations under the caption "Loss from
disposal of businesses" in Discontinued Operations.
LIQUIDITY AND CAPITAL RESOURCES
From September 1992 to February 1994, the Company had no available lines of
credit and experienced significant cash outflow as a result of operating losses
coupled with adverse publicity associated with the restatement of its first and
second quarter 1992 financial statements, defaults under its loan agreements and
senior management changes. In February 1994, the Company obtained a $35 million
debtor-in-possession credit facility ("DIP Loan") from Belmont Capital Partners
II, L.P., an affiliate of Fidelity Investments ("Belmont"), which is described
below.
The Company's consolidated cash balance increased by $13.0 million from
$39.5 million at December 31, 1993 to $52.5 million at December 31, 1994. The
December 31, 1994 cash balance included $2.9 million in foreign bank accounts.
Cash in the foreign bank accounts is not available to support the Company's
domestic mechanical/electrical services business or to pay corporate expenses.
As a consequence of the Company's financial difficulties, an asset
disposition program was initiated in the third quarter of 1992 with respect to
the Company's non-core businesses and certain other assets to raise cash for
working capital and to reduce debt. During the year ended December 31, 1994,
the Company received net cash proceeds of $13.6 million from the sale of the
Company's telephone systems business, its minority ownership in an environmental
business and other non-core businesses and other assets. The Company received
net cash proceeds of $43.4 million for the year ended December 31, 1993
primarily from the sale of certain overseas information services business units
and other non-core businesses and other assets. Such proceeds were primarily
used for working capital requirements.
-22-
<PAGE>
In 1993, the Company's U.S. information services business and its Canadian
mechanical and electrical services subsidiary made net repayments of $13.1
million and $6.2 million, respectively, on notes payable to various lending
institutions.
The DIP Loan agreement provided a credit facility to the Company of up to
$35.0 million at an interest rate of 12% per annum during the period of the
Company's Chapter 11 proceeding. In addition, Belmont became entitled to
receive, as additional interest, 4.5% of the securities issued and to be issued
under the Plan of Reorganization (the "Additional Interest"). The DIP Loan was
secured by a first lien on substantially all of the assets of the Company and
most of its subsidiaries. As of the Effective Date, the Company had drawn down
$30 million under the DIP Loan. The DIP Loan was repaid on the Effective Date
from borrowings under new credit agreements described below.
Pursuant to the Plan of Reorganization, the Company and its wholly-owned
subsidiary SellCo issued, or reserved for issuance, four series of notes (the
"New Notes") and 9,424,083 shares of newly authorized common stock of the
Company ("New Common Stock") (constituting 100% of outstanding shares as of the
Effective Date) to prepetition creditors of the Company, other than holders of
the Company's prepetition subordinated debt, in settlement of their prepetition
claims and to Belmont in payment of Additional Interest under the terms of the
DIP Loan. The principal terms and conditions of the New Notes, which are
described below, have been designed to minimize the Company's cash flow
requirements for debt service. The entire $11.9 million principal amount of
Series B Notes and approximately $4.1 million principal amount of Series A Notes
were redeemed on the Effective Date with the net cash proceeds derived from the
sale of certain of the Company's subsidiaries, the stock of which would have
been pledged as part of the collateral securing the Series B Notes had such
subsidiaries not been sold (and an additional $600,000 of such proceeds was
reserved for prepayment of certain of the Series A Notes which have been
reserved for issuance in respect of disputed and unliquidated claims). It is
contemplated that, subject to the rights of the Lenders under the Company's New
Credit Agreements discussed below under "New Credit Facility" to receive the
first $15.0 million of proceeds of the sale of stock or assets of the Water
Companies, the balance of the Series A Notes will be prepaid with the net cash
proceeds derived from the sale of the remaining subsidiaries of SellCo ("Net
Sales Proceeds") and five other non-core subsidiaries pledged as collateral for
the Series A Notes (the "Other Non-Core Subsidiaries") and that the SellCo
Subordinated Contingent Payment Notes will only be paid from and to the extent
of any remaining Net Sales Proceeds of the SellCo subsidiaries and the proceeds
of a $5,464,000 promissory note issued by the Company to SellCo pursuant to the
Plan of Reorganization (the "EMCOR Supplemental SellCo Note"). Interest on the
EMCOR Supplemental SellCo Note is payable on maturity.
The Series A Notes are in an initial principal amount of approximately
$58.1 million, including an Additional Interest amount issued to Belmont under
the DIP Loan, but after giving effect to the prepayment of approximately $4.1
million principal amount of Series A Notes on the Effective Date. The Series A
Notes bear interest at the rate of 7% per annum. Interest on the Series A
Notes, which commenced on the Effective Date, is compounded semiannually and is
payable by the issuance of additional Series A Notes. The Series A Notes mature
on the third anniversary of the Effective Date and provide for a mandatory
redemption of $10,000,000 principal amount (approximately $5.9 million principal
amount after giving effect to the approximate $4.1 million prepayment made on
the Effective Date), less any prepayments from additional Net Sales Proceeds of
SellCo subsidiaries and the Other Non-Core Subsidiaries or otherwise, on the
second anniversary of the Effective Date. The Series A Notes are guaranteed by
MES Holdings Corporation ("MES") and SellCo and are secured by pledges of the
capital stock of MES and SellCo, most of the SellCo subsidiaries and the Other
Non-Core Subsidiaries. Up to a maximum of $8.8 million additional principal
amount of Series A Notes have been reserved for issuance to holders of general
unsecured prepetition claims and to Belmont in respect of Additional Interest
upon resolution of disputed and unliquidated claims (assuming such claims are
ultimately allowed in full).
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<PAGE>
The Series B Notes issued by the Company were in the principal amount of
$11.9 million. As noted above, the Series B Notes were redeemed in full on the
Effective Date immediately upon their issuance.
The Series C Notes issued, or reserved for issuance, by the Company are in
the principal amount of approximately $62.8 million, including the Additional
Interest amount issued to Belmont. The Series C Notes bear interest at the rate
of 11% per annum and mature on the seventh anniversary of the Effective Date.
Interest on the Series C Notes, which commenced on the Effective Date, is
payable semiannually by the issuance of additional Series C Notes for the first
eighteen months after the Effective Date and thereafter is payable quarter-
annually in cash. The Series C Notes are unsecured senior indebtedness of the
Company, but subordinate to (i) the Series A Notes and (ii) up to $100 million
of new working capital indebtedness of EMCOR or MES, and are guaranteed by MES
subject to payment in full of the Series A Notes.
As a means of segregating asset sale proceeds for the benefit of impaired
creditors, SellCo issued, or reserved for issuance, approximately $48.1 million
principal amount of ten year 12% Subordinated Contingent Payment Notes (the
"SellCo Notes"), including the Additional Interest amount issued to Belmont.
The SellCo Notes are junior and subordinated indebtedness of SellCo so long as
any portion of indebtedness on account of the Series A Notes or the guaranty of
SellCo in respect thereof remains outstanding. The SellCo Notes mature on the
tenth anniversary of the Effective Date and are secured by a pledge of the
capital stock of most of the subsidiaries owned by SellCo subject to the lien in
favor of the Series A Notes and the rights of the Lenders under the New Credit
Agreements discussed below under "New Credit Facility" to receive the first
$15.0 million of proceeds of the sale of stock or assets of the Water Companies.
Subject to the prior payment in full of the Series A Notes and establishment of
a cash reserve for the payment of capital gains taxes arising from the sales of
subsidiaries of SellCo and the rights of the Lenders with respect to the
proceeds of the sale of the Water Companies, the SellCo Notes are mandatorily
prepayable to the extent of net sales proceeds from the sale of stock or the
assets of SellCo subsidiaries. Interest on the SellCo Notes, which commenced on
the Effective Date, is payable semiannually in additional SellCo Notes. The
EMCOR Supplemental SellCo Note matures on the earlier of the tenth anniversary
of the Effective Date or one day prior to the date which the SellCo Notes are
deemed cancelled as described in the following sentence. If, at any time after
the fifth anniversary of the Effective Date and prior to the maturity date of
the SellCo Notes, the value, as determined by an independent appraiser selected
by EMCOR, of the consolidated assets of SellCo (excluding the EMCOR Supplemental
SellCo Note) is less than $250,000, the balance of the SellCo Notes (not
theretofore paid from Net Sales Proceeds and the proceeds of the EMCOR
Supplemental SellCo Note which will have become due and payable) will be deemed
cancelled.
New Credit Facility. On December 14, 1994, the Company and certain of its
subsidiaries entered into two New Credit Agreements with Belmont and other
lenders providing the Company and certain of its subsidiaries with working
capital facilities of up to an aggregate of $45 million which became available
upon the Effective Date. The MES Credit Agreement is among the Company, MES,
substantially all of the U.S. subsidiaries of MES, as guarantors, and the
lenders and provides the Company and MES with loans in an aggregate amount of up
to $35 million. The Dyn Credit Agreement is among the Company, Dyn, the Dyn
subsidiaries, as guarantors, and the lenders and provides Dyn with loans in an
aggregate amount of up to $10 million. All the loans bear interest on the
principal amount thereof at the rate of 15% per annum and mature on the date
which is 18 months after the date of the New Credit Agreements.
The loans under the MES Credit Agreement are guaranteed by most of the U.S.
MES subsidiaries of MES and are secured by, among other things, substantially
all of the assets of the Company, MES and most of its U.S. subsidiaries,
including their respective accounts receivable, inventories, general intangibles
and equipment and the capital stock of the U.S. MES subsidiaries (but not the
stock of MES, Dyn, SellCo, SellCo's subsidiaries or the five Other Non-Core
Companies) and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15 million of such proceeds, subject to
the rights to such proceeds of the lenders under the Dyn Credit Agreement. The
Dyn loans are guaranteed by the Dyn
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<PAGE>
subsidiaries and are secured by substantially all of the assets of Dyn and the
Dyn subsidiaries, including their respective accounts receivable, inventories,
general intangibles and equipment and the capital stock of Dyn and the Dyn
subsidiaries and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15 million of such proceeds, subject to
the rights to such proceeds of the lenders under the MES Credit Agreement. The
Dyn loans are also secured by the collateral securing the MES loans, subject to
the rights to such collateral of the lenders under the MES Credit Agreement.
The proceeds of the MES loans under the MES Credit Agreement were used to
repay amounts under the DIP Loan and pay fees and expenses in connection with
the MES Credit Agreement and the Plan of Reorganization and the balance will be
used for the general working capital of MES, the MES subsidiaries and the
Company. The proceeds of the Dyn loans were used to pay fees and expenses in
connection with the Dyn Credit Agreement and will be used for the general
working capital of Dyn and the Dyn subsidiaries.
Each of the New Credit Agreements contains various affirmative and negative
covenants. The negative covenants limit the Company, MES, Dyn and their
respective subsidiaries' ability to take certain actions without the lenders'
approval. Such actions include, among other things: (i) merger or
consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon
their property, (iv) making of loans, investments or guarantees and (v) transfer
of assets. The negative covenants require MES, Dyn and their subsidiaries to
maintain their backlogs and work-in-progress at not less than specified levels
and to prevent their losses from operations from exceeding specified amounts in
any month. The MES Credit Agreement also requires the Company, MES and its
subsidiaries, and Dyn and its subsidiaries to maintain certain financial
coverage ratios.
The Company's Canadian subsidiary, Comstock Canada Limited ("Comstock
Canada"),has borrowings of less than Canadian $1.0 million outstanding under an
expired demand secured facility which is guaranteed by the Company. The lender
has permitted Comstock Canada to continue to borrow amounts aggregating less
than Canadian $1.0 million. This modest credit facility has adversely affected
Comstock Canada and Comstock Canada is seeking to obtain a new increased credit
facility. However, there can be no assurance that Comstock Canada will obtain a
new credit facility or, if so, as to the amount of any such facility, nor is
there any assurance Comstock's existing lender will continue to make advances
available to it or the amount of such advances.
In June 1994, a number of the Company's U.K. subsidiaries entered into a
demand credit facility with a U.K. bank for a credit line of (Pounds)14.1
million (approximately U.S. $22.3 million). The credit facility consists of the
following components with the individual credit limits as indicated: an
overdraft line of up to (Pounds)6.0 million (approximately U.S. $9.5 million); a
facility for the issuance of guarantees, bonds and indemnities of up to
(Pounds)7.3 million (approximately U.S. $11.6 million); and other credit
facilities of up to (Pounds)0.8 million (approximately U.S. $1.2 million). The
facility is secured by substantially all of the assets of the Company's
principal U.K. subsidiaries. The overdraft facility provides for interest at
the bank's base rate, as defined (6.25% as of December 31, 1994) plus 3% on the
first (Pounds)5.0 million of borrowings and at the bank's base rate plus 4% for
borrowings over (Pounds)5.0 million. This credit facility, as amended, expires
May 31, 1995. The U.K. subsidiaries are negotiating the terms of an extension
of the credit facility; however, there can be no assurance the credit facility
will be extended or, if so, its terms.
As of December 31, 1994, the Company's U.K. subsidiaries had utilized $16.9
million of the credit facilities as follows: $4.8 million of borrowings under
the overdraft line, $11.6 million for the issuance of guarantees and $0.5
million under other credit facilities.
The Water Companies carried in "Net assets held for sale" in the
accompanying Consolidated Balance Sheets, have a revolving credit agreement
which permits unsecured borrowings of up to $17.9 million by JWS and $2.1
million by Sea Cliff with interest rates based on the prime rate, LIBOR plus
5/8% or the bid rate (as defined). The revolving credit agreement providing for
these facilities expires on November 3, 1995.
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<PAGE>
Borrowings under the revolving credit agreement are reflected as current
liabilities in the condensed balance sheet of "Net Assets Held for Sale" in
Note Q to the Consolidated Financial Statements.
The Company's mechanical/electrical services business does not require
significant commitments for capital expenditures. The Water Companies
anticipate making capital expenditures of approximately $53.0 million for
utility plant over the next five years. These capital expenditures are expected
to be financed by internally generated funds with any remaining long-term
financing requirements obtained from the proceeds of newly issued first mortgage
bonds and from bank loans.
Management believes that projected cash flow from operations combined with
the available funds under the MES and Dyn Credit Agreements will provide
sufficient liquidity to meet the Company's operating, capital and scheduled debt
service requirements for the foreseeable future. Factors supporting this belief
include the terms of the New Notes, including the interest and amortization
payment terms, and the contemplated prepayment of certain of the New Notes from
the proceeds of sales of subsidiaries held for sale.
Status of Water Companies. JWS, the New York State Consumer Protection
Board, Nassau County, certain other governmental bodies and a consumer advocate
group entered into a settlement dated December 22, 1993 (the "Settlement
Agreement") which following approval by the New York State Public Service
Commission on February 2, 1994, settled all JWS issues outstanding before the
Public Service Commission, various state courts and in the RICO action. The
Settlement Agreement provides, among other things, (i) that JWS will use its
best efforts to bring about a separation of Jamaica Water Securities Corporation
("JWSC"), a subsidiary of the Company, which holds substantially all of the
common stock of JWS, from the Company and that JWSC will submit plans to the
Public Service Commission for its separation from the Company and the formation
of a separate water works corporation to be incorporated under the New York
State Transportation Corporation law to provide water utility service to Nassau
County customers served by JWS; (ii) a commitment by JWS that, subject to
limited specific exceptions, it will not seek to have a general rate increase
become effective prior to January 1, 1997, thus providing rate stability for
three years; (iii) for refunds and other payments to customers estimated to
aggregate approximately $11.7 million over the 1994-1997 period; and (iv) a cap
on earnings above which JWS will share with its customers its return on equity.
In September 1992, the Public Service Commission issued an order that
resulted in the suspension of payment of dividends on JWS's common stock for the
last two quarters of 1992 and for the year ended December 31, 1993. As a result
of the Settlement Agreement referred to above, JWS recommenced dividend payments
on its common stock in April 1994. Dividends paid by JWS to the Company in 1994
amounted to $1.1 million. Dividends paid by JWS to the Company in 1992 amounted
to $1.2 million.
Certain Insurance Matters. Since October 1992, neither the Company nor
Defender has been able to obtain additional letters of credit to secure their
insurance obligations, and, as a result they have been required to make cash
collateral deposits to an unrelated insurance company to secure those types of
obligations. The deposits totaled $37.6 million and $21.4 million as of
December 31, 1994 and 1993, respectively, and are classified as a long-term
asset in the accompanying Consolidated Balance Sheets under the caption
"Insurance Cash Collateral" in other assets. The need to provide cash
collateral has adversely affected the Company's cash flow. The Company expects
to continue to be required to post additional cash collateral for insurance
claims inasmuch as it does not believe it will be able to obtain letters of
credit for the foreseeable future.
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<PAGE>
ITEM 3. PROPERTIES
----------
The operations of the Company are conducted primarily in leased properties.
The following table lists the major facilities:
<TABLE>
<CAPTION>
SQUARE LEASE EXPIRATION
FEET DATE, UNLESS OWNED
------- ------------------
<S> <C> <C>
CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park 15,725 4/9/01
Norwalk, Connecticut
MECHANICAL AND ELECTRICAL SERVICES
1200 North Sickles Road 29,000 Owned
Tempe, Arizona
3208 Landco Drive
Bakersfield, California 49,875 4/30/95
4462 Corporate Center Drive
Los Alamitos, California 41,400 12/31/00
4464 Alvarado Canyon Road
San Diego, California 53,800 7/31/95
9505 Chesapeake Drive
San Diego, California 44,000 1/30/96
345 Sheridan Boulevard
Lakewood, Colorado 63,000 Owned
5697 New Peachtree Road
Atlanta, Georgia 27,200 11/30/95
2100 South York Road
Chicago, Illinois 77,700 1/09/00
1300 Michigan Street
Gary, Indiana 27,600 Month to Month
2655 Garfield Road
Highland, Indiana 34,600 7/08/96
3555 W. Oquendo Road
Las Vegas, Nevada 90,000 11/30/98
46-01 20th Avenue
Long Island City, New York 33,000 12/31/95
19-49 42nd Street
Long Island City, New York 59,000 2/28/96
30 N. MacQuesten Parkway
Mount Vernon, New York 25,300 11/30/98
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SQUARE LEASE EXPIRATION
FEET DATE, UNLESS OWNED
------- ------------------
<S> <C> <C>
111 West 19th Street
New York, New York 27,200 5/31/98
Two Penn Plaza
New York, New York 57,200 6/30/06
165 Robertson Road
Ottawa, Ontario 35,400 Owned
11245 Indian Trial
Dallas, Texas 43,400 4/27/96
11261 Indian Trial
Dallas, Texas 32,800 8/27/96
5550 Airline Road
Houston, Texas 74,500 6/30/96
515 Norwood Road
Houston, Texas 29,700 Month to Month
Canary Wharf
One Canada Square
London, U.K. 27,800 1/01/01
Building D-3 Freeport
Center
Clearfield, Utah 120,000 12/31/99
1574 South West Temple
Salt Lake City, Utah 58,500 Month to Month
22930 Shaw Road
Sterling, Virginia 32,600 7/31/99
109-D Executive Drive
Sterling, Virginia 49,000 7/31/96
1420 Spring Hill Road
McLean, Virginia 13,100 4/07/00
SUPPLY OF WATER
410 Lakeville Road
Lake Success, New York 24,000 7/31/98
</TABLE>
JWS owns a waterworks system consisting of approximately 850 miles of water
mains, 32 storage tanks and 93 wells (67 of which are presently operable).
Water is drawn from these wells by electric motors housed in small brick or
concrete buildings. These facilities are located on parcels of land,
aggregating approximately 55 acres, owned by JWS scattered throughout the
territory it serves. Many of the parcels are subject to liens, encumbrances and
other restrictions. Sea Cliff owns approximately 56 miles of water mains and 4
parcels of land aggregating approximately 5 acres, on which a diesel pumping
station, 2 storage facilities and 2 operating wells are located.
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<PAGE>
The Company believes that all of its property, plant and equipment are well
maintained, in good operating condition and suitable for purposes for which they
are used.
See Note N to Consolidated Financial Statements for additional information
regarding lease costs. The Company believes there will be no difficulty either
in negotiating the renewal of its real property leases as they expire or in
finding other satisfactory space.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
DIRECTORS AND OFFICERS AND OTHER BENEFICIAL OWNERS
The following table sets forth as of April 15, 1995 the number of shares of
New Common Stock beneficially owned by any person who is known to the Company to
be the beneficial owner of more than 5% of any class of the Company's equity
securities, by each director and the named executive officers (as defined below)
of the Company and by all directors and executive officers of the Company as a
group. Except as otherwise indicated, the persons listed below have sole voting
power and sole investment power with respect to the shares they beneficially
own.
<TABLE>
<CAPTION>
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership(1)(2) Percent(2)
---------------- -------------------------- ----------
<S> <C> <C>
Frank T. MacInnis -- --
Stephen W. Bershad 7,500 (3) *
David A.B. Brown 7,500 (3) *
Thomas D. Cunningham 7,500 (3) *
Albert Fried 115,635 (3)(4) 1.2%
Malcolm T. Hopkins 7,500 (3) *
Kevin C. Toner 7,500 (3) *
Sheldon I. Cammaker -- --
Leicle E. Chesser -- --
Jeffrey M. Levy -- --
Joseph A. Gallo -- --
Mark A. Pompa -- --
All directors and executive officers as a 153,135 1.6%
group
Belmont Capital Partners II, L.P. 903,675 (4)(5) 9.5%
</TABLE>
- ------------------------
-29-
<PAGE>
* Represents less than 1%.
(1) The information contained in the table reflects "beneficial ownership" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934. Unless
otherwise indicated the stockholders identified in this table have sole
voting and investment power with respect to the shares owned of record by
them. All percentages set forth in this table have been rounded.
(2) Assumes completion of issuance of New Common Stock, New Series X Warrants,
New Series Y Warrants and New Series Z Warrants pursuant to the Plan of
Reorganization.
(3) Consists of options, granted on March 20, 1995 pursuant to the Company's
1995 Non-Employee Directors' Non-Qualified Stock Option Plan, to purchase
7,500 shares of New Common Stock, at an exercise price of $5.125 per share,
which price was equal to the market price for the New Common Stock on the
date of grant.
(4) In the case of Albert Fried, the amount assumes beneficial ownership of
108,135 shares of New Common Stock owned by Albert Fried & Co. ("AF&C"), of
which Mr. Fried is the managing partner. In the case of Belmont Capital
Partners II, L.P. ("Belmont"), the amount includes 835,351 shares of New
Common Stock and 68,324 New Warrants as described in Note (5) below. AF&C
received the shares of New Common Stock and Belmont received a portion of
its shares of New Common Stock in their capacities as holders of
prepetition unsecured claims against the Debtor. There is a reserve from
the number of shares of New Common Stock to be issued to the holders of
prepetition general unsecured claims for disputed claims against the
Debtor. The Company believes that a substantial portion of such disputed
claims will be disallowed and a substantial portion of the shares of New
Common Stock held in reserve will be issued to the holders of allowed
claims. In such case, the number of shares issued to AF&C and Belmont will
increase in a presently undeterminable amount.
(5) Includes 28,272 shares, 28,272 shares and 11,780 shares issuable upon
exercise of like numbers of New Series X Warrants, New Series Y Warrants
and New Series Z Warrants, respectively, received by Belmont as Additional
Interest.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
DIRECTORS
Frank T. MacInnis, Age 48; Chairman of the Board, President and Chief
Executive Officer of the Company since April 18, 1994. From April 1990 to April
1994 Mr. MacInnis served as President and Chief Executive Officer, and from
August 1990 to April 1994 Chairman of the Board, of Comstock Group Inc., a
nationwide electrical contracting company. From 1986 to April 1990, Mr.
MacInnis was Senior Vice President and Chief Financial Officer of Comstock Group
Inc. In addition, from 1986 to April 1994 Mr. MacInnis was also President of
Spie Group Inc., which owns Comstock Group Inc., Spie Construction Inc., a
Canadian pipeline construction company, and Spie Horizontal Drilling Inc., a
U.S. company engaged in under the water drilling for pipelines and
communications cable.
Stephen W. Bershad, Age 53; Chairman and Chief Executive Officer for more
than the past five years of Vernitron Corporation, a manufacturer of electronic
components and controls.
David A.B. Brown, Age 51; President of The Windsor Group, a management
consulting firm of which he is a co-founder, for more than the past five years.
Mr. Brown is also a director of BTU International, Inc. and The Western Company
of North America.
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<PAGE>
Thomas D. Cunningham, Age 46; Executive Vice President and Chief Financial
Officer and a director of The Forschner Group, Inc., an importer and distributor
of Swiss Army knives and watches and Sabatier and Forschner cutlery since March
1994. For more than five years prior thereto, Mr. Cunningham was a Managing
Director of J.P. Morgan & Co. Inc., an international lending institution.
Albert Fried, Age 65; Managing Partner of Albert Fried & Company, a
broker/dealer and member of the New York Stock Exchange, since 1955. Mr. Fried
is also Chairman of the Board of Directors of Portec, Inc., a manufacturer of
engineered products for the construction equipment, material handling and
railroad industries, and is Vice Chairman of the Board of Directors of Oneita
Industries, Inc., a manufacturer and marketer of activewear, including T-shirts
and fleecewear.
Malcolm T. Hopkins, Age 67; Private investor since 1984. Retired Vice
Chairman and Chief Financial Officer of the former St. Regis Corporation, a
forest products, oil, gas and insurance company. Mr. Hopkins is also a director
of The Columbia Gas System, Inc., Kinder-Care Learning Centers, Inc., MAPCO
Inc., Metropolitan Series Fund Inc. and U.S. Home Corporation and serves as a
Trustee of The Biltmore Funds.
Kevin C. Toner, Age 31; Private Investor since March 1995; Managing
Director from December 1991 to March 1995 of UBS Securities Inc., a
broker/dealer and member of the New York Stock Exchange, engaged in corporate
finance, underwriting and distribution of high grade U.S. corporate issues and
Eurobonds. From March 1991 to December 1991 Mr. Toner was a Vice President of
UBS Securities and for more than five years prior thereto he held various
positions with CS First Boston, an investment banking firm.
EXECUTIVE OFFICERS
In addition to Mr. MacInnis, the following are the executive officers of
the Company.
Sheldon I. Cammaker, Age 56; Executive Vice President and General Counsel
of the Company for more than the past five years.
Leicle E. Chesser, Age 48; Executive Vice President and Chief Financial
Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser
served as Executive Vice President and Chief Financial Officer of Comstock Group
Inc. and from 1986 to May 1994 he was also Executive Vice President and Chief
Financial Officer of Spie Group Inc.
Jeffrey M. Levy, Age 42; Executive Vice President of the Company since
November 1994. Senior Vice President of the Company from December 1993 to
November 1994 and Chief Operating Officer of the Company since February 1994.
From May 1992 to December 1993, Mr. Levy was President and Chief Executive
Officer of the Company's subsidiary EMCOR Mechanical/Electrical Services (East),
Inc. From January 1991 to May 1992 Mr. Levy served as Executive Vice President
and Chief Operating Officer of Lehrer McGovern Bovis, Inc., a construction
management and construction company. From December 1988 to December 1990 Mr.
Levy was Vice President of Stone & Webster Engineering Corporation which is
engaged in the design and construction of power, industrial and petrochemical
facilities.
Joseph A. Gallo, Age 43; Senior Vice President of the Company since April
1993, a Vice President of the Company from November 1991 to April 1993, and
Treasurer of the Company for more than the past five years.
Mark A. Pompa, Age 30; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm, and from
June 1988 to June 1992 Mr. Pompa was a Senior Accountant at that firm.
-31-
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
----------------------
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation
awarded to, earned by or paid to each of the Chief Executive Officer and the
other four most highly compensated executive officers of the Company
(collectively the "named executive officers") during the fiscal years ended
December 31, 1994, 1993 and 1992 for services rendered in all capacities to the
Company and its subsidiaries. On April 18, 1994, Mr. Edward F. Kosnik resigned
as Chairman of the Board, President and Chief Executive Officer of EMCOR and Mr.
Frank T. MacInnis assumed such offices. For information regarding Mr. Kosnik's
resignation and the employment agreements, if any, of the named executive
officers, see "Employment Contracts and Termination of Employment and Change of
Control Arrangements" below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS(4)
----------------------- ------------------------------
NUMBER OF
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
COMPENSATION(3) AWARD(S)(5) OPTIONS/SARS(6) COMPENSATION(8)
NAME AND PRINCIPAL POSITION YEAR SALARY(2)($) BONUS($) ($) ($) (#) ($)
- --------------------------- ---- ------------ -------- --------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank T. MacInnis(1)....... 1994 426,923 250,000 None None (7) 256,300(9)
Chairman of the Board, 1993 -- -- -- -- -- --
President and Chief 1992 -- -- -- -- -- --
Executive Officer
Edward F. Kosnik(1)........ 1994 146,154 None None None None 251,800(10)
Former Chairman of 1993 483,460 80,000 None None None 7,800
the Board, President 1992 30,769 None None 300,000 100,000 None
and Chief Executive
Officer
Sheldon I. Cammaker........ 1994 361,322 50,000 None None (7) 176,700(11)
Executive Vice 1993 357,450 50,000 None None None 8,875
President and General 1992 362,600 50,000 None 54,375 37,622 13,110
Counsel
Jeffrey M. Levy(1)......... 1994 247,500 175,000 None None (7) 6,300
Executive Vice 1993 195,000 150,000 None None 46,500 7,650
President and Chief 1992 120,000 100,000 None None None None
Operating Officer
Stephen H. Meyers(1)....... 1994 186,923 None None None None 248,435(12)
Former Senior Vice 1993 217,212 40,000 None 181,250 50,000 5,175
President - Finance 1992 -- -- -- -- -- --
</TABLE>
- ----------------------------
(1) As Mr. MacInnis joined the Company on April 18, 1994, the blanks opposite
his name indicate that during 1992 and 1993 Mr. MacInnis was not employed
by the Company, and, accordingly, there is no compensation information to
report for him in respect of such years. In addition, amounts shown for
Mr. MacInnis for 1994 reflect less than a full year of compensation. As
Mr. Kosnik joined the Company in November 1992, and Mr. Levy joined the
Company in May 1992, amounts shown for each of them for 1992 reflect less
than a full year of compensation. Mr. Meyers joined the Company in January
1993 and the blanks opposite his name indicate that during 1992 there is no
compensation information to report for him in respect of such year. In
addition, amounts shown for Mr. Levy during 1992 and 1993 represent
compensation for Mr. Levy's service as President of EMCOR
Mechanical/Electrical Services (East), Inc., a subsidiary of the Company.
Inasmuch as Mr. Kosnik and Mr. Meyers left the Company's employ on April
18, 1994 and October 21, 1994, respectively, the amounts shown for them for
1994 reflect less than a full year of compensation. See "Employment
Contracts and Termination of Employment and Change of Control Arrangements"
below for a description of Mr. Meyers' termination arrangements.
(2) Amounts shown include amounts the named executive officers earned but chose
to defer pursuant to the Company's 401(k) Retirement Savings Plan (the
"401(k) Plan"). Pursuant to the 401(k) Plan, Mr. Cammaker deferred $9,240
for 1994 and $8,994 for 1993 and 1992. Messrs. Kosnik, Levy and Meyers
-32-
<PAGE>
were only eligible to contribute to the 401(k) Plan during 1994 and 1993,
and the amounts each of them deferred were $9,240 during 1994 and $8,994
during 1993. Mr. MacInnis was not eligible to participate in the 401(k)
Plan during 1994. Amounts shown for the named executive officers also
include the amounts applied, if any, by them to payment of their respective
medical insurance premiums made pursuant to the Company's Premium
Conversion Plan (the "Medical Plan"), a Cafeteria Plan established under
Section 125 of the Internal Revenue Code of 1986, as amended. Pursuant to
the Medical Plan, during 1994, the following amounts were applied by each
of the following named executive officers: Mr. Kosnik, $792, Mr. Cammaker,
$4,208, Mr. Levy, $2,453, and Mr. Meyers, $2,453; and during 1993, $2,275
was applied by each of them. During 1992, Mr. Kosnik did not participate in
the Medical Plan, Mr. Cammaker applied $1,250 to the Medical Plan, and Mr.
Levy applied $609 to the Medical Plan.
(3) The personal benefits provided to the named executive officers did not
exceed the disclosure threshold established by the SEC pursuant to
applicable rules.
(4) The column designated by the SEC to report Long-Term Incentive Plan Payouts
has been excluded because the Company has no long-term incentive
compensation plans and has not had any such plan during any portion of
fiscal years 1994, 1993 or 1992.
(5) The dollar amounts shown for restricted stock awards are based on the
market prices for the Company's previously outstanding common stock (all of
which was cancelled on the Effective Date) on the dates the respective
awards were made. As of December 31, 1994, none of the named executive
officers held any restricted stock awards since the Company's previously
outstanding common stock was all cancelled on the Effective Date. As of
December 31, 1993, the aggregate number of shares of restricted stock held
by each named executive officer and the aggregate dollar value of such
shares (calculated by multiplying the aggregate number of shares held by
such named executive officer by $.01, the price in the over-the-counter
market for a share of the Company's unrestricted common stock on December
31, 1993) was: Mr. Kosnik, 66,667 shares ($667); Mr. Cammaker, 25,577
shares ($258); and Mr. Meyers, 50,000 shares ($500). The restricted stock
awards to the named executive officers reported in the table were to vest
or vested as follows: awards made in respect of 1992 to Mr. Cammaker
vested 50% on January 2, 1994 and would have vested 50% on January 2, 1995.
Awards made in respect of 1993 to Mr. Meyers vested 1/3 in January 1994 and
the remainder vested in October 1994 when Mr. Meyers' employment with the
Company was terminated. Upon joining the Company in November 1993, Mr.
Kosnik was awarded a grant of 100,000 shares of restricted stock, 1/3 of
which vested in November 1993 and the remaining shares were forfeited upon
his resignation.
(6) The awards set forth in this column are of stock options only. The Company
did not award stock appreciation rights ("SARs"). The stock options refer
to previously outstanding common stock, all of which was cancelled on the
Effective Date.
(7) Mr. MacInnis received on April 5, 1995 an option to purchase 200,000 shares
of New Common Stock at an exercise price of $4.75 per share, which price
was equal to the market price for the New Common Stock on that date. Mr.
Cammaker and Mr. Levy each received on April 5, 1995 an option to purchase
50,000 shares of New Common Stock at an exercise price of $5.13 per share,
which price was equal to the average market price for the New Common Stock
over the 20 day trading period immediately preceding the issuance of the
options.
(8) The amounts reported in this column include matching contributions made by
the Company under the 401(k) Plan during 1994, 1993 and 1992 for the
account of the named executive officers as follows: 1994 and 1993 -
Messrs. Kosnik, Cammaker, Levy and Meyers, each $1,800; 1992 - Mr.
Cammaker, $1,800. The amounts reported for 1994 also include contributions
to be paid during 1995 in respect
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<PAGE>
of 1994 by the Company for the account of the following named executive
officers pursuant to the Company's Money Purchase Plan as follows: Mr.
Cammaker and Mr. Levy, each $4,500. Messrs. MacInnis, Kosnik and Meyers
were not eligible to participate in the Money Purchase Plan for 1994 and
Mr. MacInnis was not eligible to participate in the 401(k) Plan for 1994.
The amounts reported for 1993 also include contributions made during 1994
in respect of 1993 by the Company for the account of the following named
executive officers pursuant to the Company's Money Purchase Plan as
follows: Mr. Kosnik, $6,000; Mr. Cammaker, $7,075; Mr. Levy, $5,850; and
Mr. Meyers, $3,375. The amounts reported for 1992 also include
contributions made during 1993 in respect of 1992 by the Company for the
account of the following named executive officer pursuant to the Company's
Money Purchase Plan as follows: Mr. Cammaker, $6,866. Messrs. Kosnik and
Levy were not eligible to participate in the Money Purchase Plan for 1992.
For 1992, the amounts reported also include a contribution made during 1992
in respect of 1991 pursuant to the Company's Employee Stock Ownership Plan
of $4,444 for Mr. Cammaker. Inasmuch as Mr. MacInnis was not eligible to
participate in the 401(k) Plan or the Money Purchase Plan for 1994, the
amounts reported in this column for Mr. MacInnis include $6,300 payable to
him under a supplemental retirement plan in accordance with the terms of
his employment agreement.
(9) Amount reflects a signing bonus of $250,000 paid to Mr. MacInnis upon his
joining the Company on April 18, 1994.
(10) Amount includes payments of $100,000 in each of February and March 1994 and
$50,000 in April 1994 paid to induce Mr. Kosnik to remain with the Company
for a period of time to enable the Company to find a successor.
(11) Amount includes a stay bonus of $170,400 paid to Mr. Cammaker on September
30, 1994.
(12) Amount includes a stay bonus of $112,500 paid to Mr. Meyers on September
30, 1994 and a severance payment of $112,500 paid to Mr. Meyers on October
31, 1994 after Mr. Meyers' employment with EMCOR terminated on October 21,
1994. This amount also includes an aggregate of $21,635 in severance
payments paid to Mr. Meyers in November and December of 1994. A remaining
$203,365 in severance payments owed to Mr. Meyers will be paid to him in
equal weekly installments during 1995.
EMPLOYEE OPTION EXERCISES AND HOLDINGS
All outstanding options to purchase shares of the previously outstanding
common stock of the Company held during 1994 by the named executive officers
were cancelled on the Effective Date. In accordance with the terms of his
employment agreement, on April 5, 1995, Mr. MacInnis received an option pursuant
to the Company's 1994 Management Stock Option Plan to purchase 200,000 shares of
New Common Stock at an exercise price of $4.75 per share, which price was equal
to the market price for the New Common Stock on that date. On April 5, 1995, Mr.
Cammaker and Mr. Levy each received an option pursuant to the 1994 Management
Stock Option Plan to purchase 50,000 shares of New Common Stock at an exercise
price of $5.13 per share, which price was equal to the average market price for
the New Common Stock over the 20 day trading period immediately preceding the
issuance of the options. Options granted pursuant to the 1994 Management Stock
Option Plan are not exercisable until one year after the date of grant, at which
time one-third of the options become exercisable. See "The Company's 1994
Management Stock Option Plan." No named executive officer exercised any options
during 1994. No named executive officer holds or held any SARs.
-34-
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Employment Agreements
The Company has entered into an Employment Agreement (the "Agreement"),
dated as of April 18, 1994, with Frank T. MacInnis providing for his employment
as Chief Executive Officer and President of the Company during the period April
18, 1994 through December 31, 1997. The Agreement provides that the term of
employment will automatically be extended for successive one-year periods unless
the Company or Mr. MacInnis gives written notice not to extend at least six
months prior to the end of such period. The Company is also to use its best
efforts to ensure his election as Chairman of the Board of Directors of the
Company.
Pursuant to the Agreement, the Company is to pay Mr. MacInnis an annual
base salary of $600,000 and to increase such base salary on the first day of
each calendar year during his employment by at least the percentage increase for
the prior year in the relevant consumer price index. In addition, Mr. MacInnis
is entitled to receive an annual bonus, which, for the period ended on December
31, 1994, was to be no less than $150,000. For each calendar year thereafter,
Mr. MacInnis' bonus will be determined by a formula agreed upon by Mr. MacInnis
and the Compensation and Personnel Committee of the Board of Directors of the
Company. In addition to his salary and bonus, Mr. MacInnis has been paid a one-
time cash payment of $250,000 and received an option (the "Option") to purchase
200,000 shares of New Common Stock. In accordance with the Agreement, the
Option was issued at an exercise price of $4.75 per share, which price was equal
to the market price for the New Common Stock on April 5, 1995.
Under the terms of the Agreement, Mr. MacInnis has been provided with
certain benefits customarily accorded to the Company's senior executive officers
as well as supplemental benefits such that he will become fully vested in the
Company's Money Purchase Plan and 401(k) Plan. In addition, Mr. MacInnis is
entitled to $600 per month for leasing (plus maintenance and insurance) of an
automobile; reimbursement for all initiation fees and monthly dues for
membership in a club suitable for entertaining clients of the Company; all legal
expenses incurred by him in connection with the Agreement; and the cost of any
increased tax liability to him caused by the receipt of these fringe benefits.
If Mr. MacInnis' employment is terminated during the term of the Agreement
by the Company other than for Cause (as defined in the Agreement) or he
terminates his employment for Good Reason (as defined in the Agreement), Mr.
MacInnis will be entitled to receive a cash payment equal to the sum of: (i)
the greater of (A) his base salary at the highest annual rate in effect during
his employment from the date of termination through December 31, 1997 or (B) two
times his base salary at its then current annual rate and (ii) an amount equal
to the product of the highest bonus paid to him during his employment (but in no
event less than $150,000) times (A) the number of full or partial years
remaining from the date of termination through December 31, 1997 or (B) two,
whichever is greater; however, in the event of a termination following a Change
in Control (as defined in the Agreement), the factor of two in clause (i)(B)
above will be increased to three. In addition, Mr. MacInnis will be entitled to
receive all unpaid amounts in respect of any bonus for any calendar year ending
before the date of termination.
During 1994, the Company had an employment contract with Sheldon I.
Cammaker, expiring January 31, 1999, pursuant to which Mr. Cammaker serves as a
senior executive officer of the Company. Mr. Cammaker received an annual base
salary of $361,322 in 1994 which salary increases on the first day of each
calendar year during his employment by at least 6%. In addition, pursuant to
the terms of his employment contract, Mr. Cammaker is eligible to receive annual
bonuses, has been provided with certain benefits customarily accorded the
Company's senior executive officers and is provided with a Company automobile.
-35-
<PAGE>
The above-referenced employment contract provides that, in the event of a
change in control of the Company and within two years thereafter Mr. Cammaker is
terminated or elects to terminate his employment, Mr. Cammaker would be entitled
to retain any shares of restricted stock of the Company previously issued to him
and to be paid an amount equal to the sum of (i) $470,000, (ii) $320,000
multiplied by each full calendar year remaining under his employment agreement,
and (iii) $320,000 less, with respect to clause (iii), the base salary already
paid to him for the year of termination.
Mr. Meyers, whose employment with the Company was terminated on October 21,
1994, had an employment agreement with the Company without a fixed term. Mr.
Meyers received a base salary at the annual rate of $225,000 and was eligible
for an annual bonus. Upon joining the Company, Mr. Meyers received a grant of
an option to purchase 50,000 shares of common stock, at an exercise price of
$3.625 per share (the fair market value of a share of common stock on the date
of grant, January 15, 1993), in addition to a grant of 50,000 shares of
restricted stock. The option, which was the only option granted by the Company
or any of its subsidiaries to an employee during the 1993 fiscal year, was
cancelled pursuant to the Plan of Reorganization.
Mr. Edward F. Kosnik joined the Company in November 1992 as Executive Vice
President and Chief Financial Officer. In April 1993 he became President and
Chief Executive Officer and became Chairman of the Board as of July 1, 1993. In
April 1994 Mr. Kosnik resigned as Chairman of the Board, President and Chief
Executive Officer of the Company. When Mr. Kosnik joined the Company he
received an employment agreement without a fixed term. Prior to becoming
President and Chief Executive Officer, his base salary was at the rate of
$400,000 per annum in accordance with the terms of his employment agreement, and
thereafter his salary was at the annual rate of $500,000. Pursuant to the
employment agreement, Mr. Kosnik received an option to purchase 100,000 shares
of common stock, at an exercise price of $3.00 per share (the fair market value
of a share of common stock on the date of grant, November 24, 1992), in addition
to a grant of 100,000 shares of restricted stock. The restricted stock was to
vest, and the stock options were to become exercisable, one-third in November
1993, one-third in November 1994 and one-third in November 1995. Mr. Kosnik's
employment agreement also provided that he was eligible for an annual bonus. In
December 1993 Mr. Kosnik indicated a desire to leave the Company, and in order
to induce him to remain with the Company for a period of time to enable the
Company to find a successor, Mr. Kosnik was paid $250,000 in 1994 in addition to
his base salary and in addition to a bonus of $80,000 paid to him in respect of
1993. Following his resignation, Mr. Kosnik's options lapsed and he forfeited
66,667 shares of the restricted stock issued to him that had not vested.
Termination Arrangements
Stephen H. Meyers' employment with the Company terminated pursuant to a
termination agreement dated October 21, 1994 (the "Meyers Termination
Agreement"). Pursuant to the Meyers Termination Agreement, Mr. Meyers resigned
as an officer of the Company as of the close of business on October 31, 1994.
Mr. Meyers agreed to provide to the Company, upon reasonable notice, consulting
services of up to 40 hours during the period November 1, 1994 through February
28, 1995 without any charge to the Company, and at the rate of $125 per hour for
such services in excess of 40 hours. Mr. Meyers agreed, following reasonable
notice, to use his best efforts to make himself reasonably available for
consulting services to the Company after February 28, 1995 at a rate of $125 per
hour plus reimbursement of any reasonable and necessary out-of-pocket expenses
incurred in connection therewith.
The Meyers Termination Agreement also provides for the payment of $337,500
to Mr. Meyers in connection with the termination of his employment, of which
$112,500 was paid on October 31, 1994 (including $16,600 paid by the EMCOR
Group, Inc. Employee Severance Pay/Stay Bonus Plan) and the balance of $225,000
of which is payable in 52 equal weekly installments.
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<PAGE>
Other Arrangements
Effective as of June 25, 1993, the Company adopted the EMCOR Group, Inc.
Employees' Severance Pay/Stay Bonus Plan (the "Plan") in order to encourage
designated employees of the parent corporation to continue their employment over
the next two years while the Company restructured its business operations. As
amended, the Plan provides that a Plan participant will be entitled to receive a
pre-determined amount of severance pay if his employment with the Company is
terminated for reasons other than death, disability, voluntary resignation or
for cause (as defined) during the two-year period commencing on June 25, 1993
and ending on June 24, 1995. Certain Plan participants also were entitled to
receive a predetermined stay bonus if they remained continuously employed with
the Company during the period which commenced on June 25, 1993 and ended on
September 30, 1994, and all stay bonuses payable under the Plan have been paid.
All severance payments payable under the Plan represent an obligation of
the Company and are to be paid from its general assets. Notwithstanding the
foregoing, the Company may, from time to time, in its sole discretion, make
contributions to a taxable, irrevocable trust ("Trust") to pre-fund all or a
portion of a Plan participant's benefits to which he may become entitled.
Payments from the Trust to Plan participants shall be in discharge of the
Company's liability under the Plan to such participants to the extent such
benefits are paid from the Trust. In addition, the assets of the Trust, which
would be allocated to accounts to be established for the benefit of Plan
participants, will not be subject to the claims of the Company's creditors in a
bankruptcy or other insolvency proceeding under federal or state law. Although
the Plan participants would have a secured interest in the contributions made by
the Company and credited to their respective accounts, if any, they would have
no interest, secured or unsecured, in the income of the Trust (including
unrealized capital gains), which income would be distributed quarterly to the
Company, which will be responsible for the payment of any federal, state or
local taxes payable on such income. Through December 31, 1994, $969,514 had
been contributed to the Plan and amounts payable as stay bonuses aggregating
$828,725 were fully funded and paid out on September 30, 1994.
As soon as practicable following the date a Plan participant becomes
entitled to receive a severance payment under the Plan, the Company is to direct
the Trustee under the Trust (the "Trustee") to distribute to him in a lump sum
the lesser of: the amount credited to his account, if any, in the Trust, or the
amount of his severance payment benefit to which he is then entitled to the
extent, if any, of the amount credited to his Trust account. To the extent that
the amount credited to his Trust account is less than such benefit, he is to
receive the balance from the Company, either in a lump sum or in weekly
installments (not exceeding 52 installments), at such times and in such amounts,
as determined by the Committee administering the Plan in its sole discretion.
Payments under the Plan are subject to federal, state and local income tax
withholding and all other applicable federal, state and local taxes. The
Trustee and the Company, as the case may be, are to withhold from any payments
it makes all applicable federal, state and local withholding taxes and the
employee will be required to file any necessary certificate or other form in
connection therewith prior to receiving any payments.
In the event that a Plan participant dies or becomes disabled prior to
becoming entitled to any benefit payable under the Plan, his right to such
benefit will be forfeited. In the event a Plan participant dies after becoming
entitled to a benefit payable under the Plan but prior to recovering the full
amount of such benefit, his designated beneficiary or his estate (if no
beneficiary has been designated) will be entitled to receive such unpaid
benefits on the date or dates that the Plan participant would have received them
while living.
The Plan is administered by an administrative committee appointed by the
Board of Directors, which consists of such number of persons as shall from time
to time be determined by the Board of Directors.
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Members of the committee may be officers, directors, or employees of the Company
or others and shall hold office at the pleasure of the Board of Directors and
without compensation, unless otherwise determined by the Board of Directors.
The committee is charged with the operation and administration of the Plan. The
committee has the power to interpret and construe the Plan, to determine all
questions arising under the Plan, and to adopt and amend from time to time such
rules and regulations necessary for the administration of the Plan which are not
inconsistent with the terms and provisions of the Plan. Notwithstanding the
foregoing, the Board of Directors retains the power to determine all questions
of eligibility, status and rights of Plan participants.
The Plan terminates automatically, effective as of August 24, 1995, unless
the termination date is deferred to a later date by the Board of Directors of
the Company ("Deferred Termination Date"). The Board of Directors of the
Company may amend, suspend or terminate the Plan or any portion thereof at any
time prior to the later of August 24, 1995 or any Deferred Termination Date;
provided, however, that unless the written consent of a Plan participant is
obtained, no such amendment or termination shall adversely affect the rights of
any Plan participant. Upon termination of the Plan, all Plan benefits not
payable from the Trust shall be paid by the Company within 60 days of such
termination date. Upon termination of both the Plan and the Trust, any assets
remaining in the Trust after all benefits payable under the Plan have been paid
in full shall be returned to the Company.
Under the terms of the Plan the following named executive officers of the
Company would be entitled to receive a severance payment as follows: Sheldon I.
Cammaker-$340,788 and Jeffrey M. Levy-$247,500. See Item 6. "Executive
Compensation-Summary Compensation Table" above for the stay bonuses paid to
named executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal year 1994, the Board of Directors of the Company was responsible
for matters concerning executive compensation. Mr. Kosnik was Chairman of the
Board, President and Chief Executive Officer through April 15, 1994, and Mr.
MacInnis, who succeeded Mr. Kosnik as Chairman of the Board, also served as the
Chief Executive Officer and President of the Company during 1994.
DIRECTOR COMPENSATION
Each director who is not an officer of the Company ("non-employee
director") receives an annual retainer of $30,000 and $1,000 for each meeting of
the Board he attends, other than telephonic meetings of the Board in which case
each non-employee director who participates receives $500. Each non-employee
director also receives $500 for each meeting of a committee of the Board of
Directors attended by the director, and each non-employee director who chairs a
committee of the Board receives an additional $2,000 per annum. In addition,
pursuant to the 1995 Non-Employee Directors' Non-Qualified Stock Option Plan
discussed below, each non-employee director on March 20, 1995 was granted an
option on that date to purchase 7,500 shares of New Common Stock at an exercise
price of $5.125 per share. Each person who is elected to serve as a non-
employee director after March 20, 1995 (including those persons who were non-
employee directors on March 20, 1995) shall be granted an option during each
calendar year (beginning with 1995) to purchase 3,000 shares of New Common
Stock. Directors who also serve as officers of the Company do not receive
compensation for services rendered as directors.
THE COMPANY'S 1994 MANAGEMENT STOCK OPTION PLAN
During the restructuring process and the Plan of Reorganization
negotiations, all parties concluded that it would be in the best interests of
the Company, its creditors and equity holders that there be both continuity of
key management and a performance incentive for maintaining such continuity.
Accordingly,
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the Company adopted a Management Stock Option Plan (the "1994 Plan"). The 1994
Plan is conditioned on approval by the stockholders of the Company following its
adoption.
The 1994 Plan is administered by the Compensation and Personnel Committee
of the Board of Directors (the "Compensation Committee"), comprised of two or
more directors of the Company, each of whom is disinterested within the meaning
of Rule 16b-3(c)(2) under the Securities Exchange Act of 1934 (the "Exchange
Act") and considered an outside director within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder. Such key employees as may be determined by the
Compensation Committee from time to time will be eligible to participate in the
1994 Plan.
The aggregate number of shares of New Common Stock that may be issued
pursuant to options under the 1994 Plan may not exceed 1,000,000. The maximum
number of shares which may be the subject of options granted to any individual
in any calendar year shall not exceed 500,000 shares.
Within one year after the Effective Date, the Compensation Committee shall
determine the recipients of options to purchase a minimum of 500,000 shares of
New Common Stock of EMCOR pursuant to the 1994 Plan and shall issue such options
to such recipients in the respective amounts as determined by the Compensation
Committee; provided, however, that in no event shall such options be issued
prior to the expiration of three months plus 20 days after the Effective Date.
The employment agreement between the Company and Frank T. MacInnis requires that
Mr. MacInnis shall receive options to purchase 200,000 shares of New Common
Stock three months and twenty-one days following the Effective Date.
Options may be granted by the Compensation Committee to eligible employees
as "incentive stock options" (as defined under Section 422 of the Code) or as
non-qualified stock options.
The exercise price of an incentive stock option and a non-qualified stock
option must be at least equal to the fair market value of the New Common Stock
on the date of grant; provided, however, that pursuant to the Plan of
Reorganization the purchase price for the initial grant of options with respect
to 500,000 shares shall be equal to the average market price of New Common Stock
over the 20 day trading period immediately preceding the date of issuance of the
option; and provided, further, that if the average market price of New Common
Stock for the applicable period cannot be determined, the exercise price shall
be determined by an investment advisor selected by the Compensation Committee of
the Board of Directors of the Company. Notwithstanding the preceding, the
exercise price of any such option which is an incentive stock option shall not
be less than the fair market value of the New Common Stock on the date of grant
of the option.
Options may not be exercised more than ten years after the date of grant.
Options shall be exercisable at such rate and times as may be fixed by the
Committee on the date of grant; however, the rate at which the option first
becomes exercisable may not be more rapid than 33-1/3% on and after each of the
first, second and third anniversaries of the date of grant. The aggregate fair
market value (determined at the time the option is granted) of the New Common
Stock with respect to which incentive stock options are exercisable for the
first time by a participant during any calendar year (under all stock option
plans of the Company and its subsidiaries) shall not exceed $100,000; to the
extent that this limitation is exceeded, such excess options shall be treated as
non-qualified stock options for purposes of the 1994 Plan and the Code.
At the time an option is granted, the Compensation Committee may, in its
sole discretion, designate whether the option is to be considered an incentive
stock option or non-qualified stock option. Options with no such designation
shall be deemed an incentive stock option, to the extent that the $100,000 limit
described above is met.
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Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of New Common Stock already owned by
the option holder, by a "cashless" exercise method with a designated broker, or
by such other method as the Compensation Committee may permit from time to time.
However, a holder may not use previously owned shares of New Common Stock that
were acquired pursuant to the 1994 Plan, or any other stock plan that may be
maintained by the Company or its subsidiaries, to pay the purchase price under
an option, unless the holder has beneficially owned such shares for at least six
months.
Options become immediately exercisable in full upon the retirement of the
holder after reaching the age of 65, upon the disability or death of the holder
while in the employ of the Company, or upon the occurrence of such special
circumstances as in the opinion of the Compensation Committee merit special
consideration. However, no options or rights may be exercised earlier than six
months following the later of the date of grant or of the stockholder approval
of the 1994 Plan (except that the estate of a deceased holder of an option may
exercise it prior to the expiration of such six-month period).
Options terminate at the end of the three-month period following the
holder's termination of employment. This period is extended to six months in
the case of the death of the holder, in which case the option is exercisable by
the holder's estate.
Each option contains anti-dilution provisions which will automatically
adjust the number of shares subject to options in the event of a stock dividend,
split-up, conversion, exchange, reclassification or substitution. In addition,
upon the dissolution or liquidation of the Company, or the occurrence of a
merger or consolidation in which the Company is not the surviving corporation,
or in which the Company becomes a subsidiary of another corporation or in which
the voting securities of the Company which are outstanding immediately prior
thereto do not continue to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting securities of the Company or such surviving entity
immediately after such merger or consolidation, or upon the sale of all or
substantially all of the assets of the Company, the 1994 Plan and the options
granted thereunder shall terminate unless provision is made by the Company in
connection with such transaction for the assumption of options theretofore
granted, or the substitution for such options of new options of the successor
corporation or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kinds of shares and the per share exercise prices. If options
terminate as a result of any such transaction, the holder will be entitled to
the excess of (i) the fair market value (determined on the basis of the amount
received by stockholders in connection with such transaction) of the shares
subject to the portion of the option not theretofore exercised (whether or not
the option is then exercisable pursuant to its terms or otherwise), over (ii)
the aggregate purchase price that would be payable for such shares upon the
exercise of the option. In the event of any other change in the corporate
structure or outstanding shares of New Common Stock, the Compensation Committee
may make such equitable adjustments to the number of shares and the class of
shares available under the 1994 Plan or to any outstanding options as it shall
deem appropriate to prevent dilution or enlargement of rights.
The Company shall obtain such consideration for granting options under the
1994 Plan as the Compensation Committee in its discretion may request.
Each option may be subject to provisions to assure that any exercise or
disposition of New Common Stock will not violate the securities laws.
No options may be granted under the 1994 Plan after ten years following the
date of its adoption.
The Board of Directors or the Compensation and Personnel Committee may at
any time withdraw or amend the 1994 Plan and may, with the consent of the
affected holder of an outstanding option
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at any time withdraw or amend the terms and conditions of outstanding options.
Any amendment which would increase the number of shares issuable pursuant to
options or to any individual employee, or change the class of employees to whom
options may be granted shall be subject to the approval of the stockholders of
the Company within one year of such amendment.
The Federal income tax consequences to an employee who receives incentive
stock options generally will, under current law, be as follows:
An employee will not realize any income upon the grant or exercise of an
incentive stock option. If the employee disposes of the shares of New Common
Stock acquired upon the exercise of an incentive stock option at least two years
after the date the option is granted and at least one year after the New Common
Stock is transferred to him or her, the employee will realize long-term capital
gain in an amount equal to the excess, if any, of his or her selling price for
the shares over the option exercise price. In such case, the Company will not
be entitled to any tax deduction resulting from the issuance or sale of the
shares. If the employee disposes of the shares of New Common Stock acquired
upon the exercise of an incentive stock option prior to the expiration of two
years from the date the option is granted, or one year from the date the New
Common Stock is transferred to him or her, any gain realized will be taxable at
such time as follows (a) as ordinary income to the extent of the difference
between the option exercise price and the lesser of the fair market value of the
shares on the date the option was exercised or the amount realized from such
disposition, and (b) as capital gain to the extent of any excess, which gain
shall be treated as short-term or long-term capital gain depending upon the
holding period of the New Common Stock. In such case, the Company may claim an
income tax deduction (as compensation) for the amount taxable to the employee as
ordinary income.
In general, the difference between the fair market value of the New Common
Stock at the time the incentive stock option is exercised and the option
exercise price will constitute an item of adjustment, for purposes of
determining alternative minimum taxable income, and under certain circumstances
may be subject, in the year in which the option is exercised, to the alternative
minimum tax.
If an employee uses shares of New Common Stock which he or she owns to pay,
in whole or in part, the exercise price for shares acquired pursuant to an
incentive stock option, (a) the holding period for the newly issued shares of
New Common Stock equal in value to the old shares which were surrendered upon
the exercise shall include the period during which the old shares were held, (b)
the employee's basis in such newly issued shares will be the same as his or her
basis in the old shares surrendered and (c) no gain or loss will be recognized
by the employee on the old shares surrendered. However, if any employee uses
shares previously acquired pursuant to the exercise of an incentive stock option
to pay all or part of the exercise price under an incentive stock option, such
tender will constitute a disposition of such previously acquired shares for
purposes of the one-year (or two-year) holding period requirement applicable to
such incentive stock option and such tender may be treated as a taxable
exchange.
The Federal income tax consequences to an employee who receives non-
qualified stock options generally will, under current law, be as follows:
An employee will not realize any income at the time the option is granted.
Generally, an employee will realize ordinary income, at the time the option is
exercised in a total amount equal to the excess of the then market value of the
New Common Stock acquired over the exercise price. However, Section 83 of the
Code provides that, if a director, officer or principal stockholder (i.e., an
owner of more than 10 percent of the outstanding shares of New Common Stock)
receives shares pursuant to the exercise of a non-qualified stock option, he or
she is not required to recognize any income until the date on which such shares
can be sold at a profit without liability under Section 16(b) of the Exchange
Act. At such time, the director, officer or principal stockholder will realize
income equal to the amount by which the then fair market value of the shares
acquired pursuant to the exercise of such option exceeds the price paid for such
shares. Alternatively, a director, officer or principal stockholder who would
not otherwise be taxed at the time the shares are
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transferred may file a written election within 30 days with the Internal Revenue
Service, to be taxed as of the date of transfer, on the difference between the
then fair market value of the shares and the price paid for such shares.
All income realized upon the exercise of a non-qualified stock option will
be taxed as ordinary income. The Company will be entitled to a tax deduction
(as compensation) for the amount taxable to an employee (including a director,
officer and principal stockholder) upon the exercise of a non-qualified stock
option, as described above, in the same year as those amounts are taxable to the
employee.
Shares of New Common Stock issued pursuant to the exercise of a non-
qualified stock option generally will constitute a capital asset in the hands of
an employee (including a director, officer or principal stockholder) and will be
eligible for capital gain or loss treatment upon any subsequent disposition.
The holding period of an employee (including a director, officer or principal
stockholder) will commence upon the date he or she recognizes income with
respect to the issuance of such shares, as described above. The employee's
basis in the shares will be equal to the greater of their fair market value as
of that date or the amount paid for such shares. If, however, an employee uses
shares of New Common Stock which he or she owns to pay, in whole or in part, the
exercise price for shares acquired pursuant to the exercise of a non-qualified
stock option, (a) the holding period for the newly issued shares of New Common
Stock equal in value to the old shares which were surrendered upon the exercise
shall include the period during which the old shares were held, (b) the
employee's basis in such newly issued shares will be the same as his or her
basis in the surrendered shares, (c) no gain or loss will be realized by the
employee on the old shares surrendered, and (d) the employee will realize
ordinary income in an amount equal to the fair market value of the additional
number of shares received over and above the number of old shares surrendered
(the "Additional Shares") and the employee's basis in the Additional Shares will
be equal to such fair market value.
In addition to the Federal income tax consequences discussed above, Section
280G of the Code provides that if an officer, stockholder or highly compensated
individual receives a payment which is in the nature of compensation and which
is contingent upon a change in control of the employer, and such payment equals
or exceeds three times his or her "base salary" (as hereinafter defined), then
any amount received in excess of base salary shall be considered an "excess
parachute payment." An individual's "base salary" is equal to his or her
average annual compensation over the five-year period (or period of employment,
if shorter) ending with the close of the individual's taxable year immediately
preceding the taxable year in which the change in control occurs. If the
taxpayer establishes, by clear and convincing evidence, that an amount received
is reasonable compensation for past or future services, all or a portion of such
amount may be deemed not to be an excess parachute payment. If any payments made
under the 1994 Plan in connection with a change in control of the Company
constitute excess parachute payments with respect to any employee, then in
addition to any income tax which would otherwise be owed on such payment, the
individual will be subject to an excise tax equal to 20% of such excess
parachute payment and the Company will not be entitled to any tax deduction to
which it otherwise would have been entitled with respect to such excess
parachute payment.
Section 280G provides that payments made pursuant to a contract entered
into within one year of the change in control are presumed to be parachute
payments unless the individual establishes, by clear and convincing evidence,
that such contract was not entered into in contemplation of a change in control.
In addition, the General Explanation of the Tax Reform Act of 1984 prepared by
the Staff of the Joint Committee on Taxation indicates that the grant of an
option within one year of the change in control or the acceleration of an option
because of a change in control may be considered a parachute payment in an
amount equal to the value of the option or the value of the accelerated portion
of the option as the case may be. Pursuant to proposed regulations issued by the
Treasury Department under Section 280G, the acceleration of a non-qualified
stock option because of a change in control is considered a parachute payment in
an amount equal to the value of the accelerated portion of the option. Even if
the grant of an option within one year of the change in control or the
acceleration of an option is not a parachute payment for purposes of Section
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280G, the exercise of an option within one year of the change in control or the
exercise of the accelerated portion of an option may result in a parachute
payment, in an amount equal to the excess of the fair-market value of the shares
received upon exercise of the option over the exercise price. Payments received
for the cancellation of an option because of a change in control may also result
in parachute payments.
The foregoing summary with respect to Federal income taxation does not
purport to be complete and reference is made to the applicable provisions of the
Code.
THE COMPANY'S 1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On March 20, 1995 the Company adopted the 1995 Non-Employee Directors' Non-
Qualified Stock Option Plan (the "1995 Plan"). The 1995 Plan is conditioned on
approval by the stockholders of the Company following its adoption.
The 1995 Plan provides for automatic grants of non-qualified stock options
to directors of the Company who are not also employees of the Company or a
subsidiary, in consideration of the services of such directors for the Company.
Pursuant to the 1995 Plan, each non-employee director on March 20, 1995 was
granted an option on that date to purchase 7,500 shares of New Common Stock at
an exercise price of $5.125 per share. Each person who is elected to serve as a
non-employee director after March 20, 1995 (including those persons who were
non-employee directors on March 20, 1995) shall be granted an option during each
calendar year (beginning with 1995) to purchase 3,000 shares of New Common
Stock, on the date on which the Board of Directors holds its first meeting
following the annual meeting of stockholders held during such calendar year;
however, if, beginning with 1996, an annual stockholders' meeting does not occur
within 16 months after the month in which the prior year's annual meeting was
held, such option shall be granted on the last day of such 16th month.
The aggregate number of shares of New Common Stock that may be issued
pursuant to options under the 1995 Plan may not exceed 200,000.
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the New Common Stock on the date of grant. Such options
are fully exercisable as of the date of grant; however, no option may be
exercised prior to stockholder approval of the 1995 Plan nor more than ten years
after the date of grant. Payment of the purchase price for shares acquired upon
the exercise of options may be made by the same methods as are specified in the
1994 Plan (other than such method as may be permitted in the discretion of the
Compensation and Personnel Committee).
The 1995 Plan contains the same anti-dilution and other adjustment and
cash-out provisions as the 1994 Plan in certain events.
No options may be granted under the 1995 Plan after ten years following the
date of its adoption.
The Board of Directors may at any time withdraw or amend the 1995 Plan and
may, with the consent of the affected holder of an outstanding option at any
time withdraw or amend the terms and conditions of outstanding options. Any
amendment which would increase the number of shares issuable pursuant to
options, change the class of persons who are eligible to be granted options or
materially increase the benefits to participants in the 1995 Plan shall be
subject to the approval of the stockholders of the Company. In addition, no
amendment may be made more than once every six months to any provision of the
1995 Plan that specifies the directors to whom options may be granted, the
timing of option grants, the number or purchase price of shares of New Common
Stock that can be purchased under options or the time when options may be
exercised, except any amendment that is necessary to comport with changes in the
Internal Revenue Code or the Employee Retirement Income Security Act of 1974, as
amended.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Albert Fried and Kevin C. Toner are directors of the Company and both have
a material interest in the New Credit Agreements, which provide the Company and
certain of its subsidiaries with working capital facilities of up to an
aggregate of $45.0 million. Albert Fried is Managing Partner of Albert Fried &
Company, which agreed to loan up to $7.0 million as one of the Lenders under the
New Credit Agreements. Kevin C. Toner agreed to loan up to $1.0 million as one
of the Lenders under the New Credit Agreements. In addition, UBS Mortgage
Finance Inc., an affiliate of UBS Securities Inc., Mr. Toner's former employer,
agreed to loan up to $2.0 million as one of the Lenders under the New Credit
Agreements.
ITEM 8. LEGAL PROCEEDINGS
-----------------
SHAREHOLDER LITIGATION
Since August 1992, nineteen class action lawsuits were filed against EMCOR
arising out of the restatements of earnings, write-offs and losses announced by
EMCOR on August 4, 1992 and October 2, 1992. The lawsuits named as defendants,
among others, EMCOR and certain of its former officers and directors and alleged
federal securities law and state law violations. On November 2, 1992, all of
those actions were consolidated for pre-trial purposes before Judge Charles L.
Brieant in the White Plains division of the United States District Court for the
Southern District of New York.
Pursuant to Stipulation and Court Order, on January 15, 1993, a single
consolidated amended class action complaint (the "Complaint") was filed against
EMCOR and Andrew T. Dwyer, a former Chairman of the Board, President and Chief
Executive Officer of EMCOR, Ernest W. Grendi, a former director, Executive Vice
President and Chief Financial Officer of EMCOR, Joseph E. Grendi, former Chief
Financial Officer of EMCOR's Mechanical/Electrical Services Group, and four
other former directors of EMCOR, Innis O'Rourke, Jr., Craig C. Perry, Edmund S.
Twining, Jr. and George M. Duff, Jr., each of whom were members of EMCOR's Audit
Committee for all or part of 1991, and Ernst & Young, which served as EMCOR's
auditor for 1992 and 1991 and several prior years.
The Complaint alleges violations of Section 10(b) of the Securities and
Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and
deceit on the part of EMCOR and the other named defendants. Among other things,
EMCOR is alleged to have intentionally and materially overstated its inventory,
accounts receivable and earnings in various public disseminations during the
purported class period, May 1, 1991 through October 1, 1992. The Complaint
seeks an unspecified amount of damages. On March 30, 1993, EMCOR filed an
answer which denied the material allegations in the Complaint. In June 1994,
the Bankruptcy Court modified the automatic stay provided by the Bankruptcy Code
with respect to the class action lawsuits in order to allow discovery of the
non-debtor defendants and limited discovery of EMCOR. Following the entry of
that order, there has been a substantial amount of documentary and deposition
discovery directed to EMCOR and certain of its present and former employees.
However, the Bankruptcy Court's order dated September 30, 1994, confirming
the Plan of Reorganization, included a discharge of all claims asserted against
EMCOR in the class action lawsuits, and a permanent injunction against
continuing these lawsuits, or any other proceeding, with respect to the claims
asserted therein. Accordingly, on December 2, 1994, these actions were
dismissed with prejudice as against EMCOR.
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SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
EMCOR has been informed by the Securities and Exchange Commission (the
"SEC") that it is conducting a private investigation to determine whether there
have been violations of certain provisions of the federal securities laws and/or
the rules and regulations of the SEC in connection with EMCOR's financial
records, reports, and public disclosures. EMCOR has been cooperating with the
SEC's staff and has voluntarily produced documents and information as requested
by the staff. On April 12, 1994, the SEC staff informed EMCOR of its intention
to recommend that the SEC file a civil injunction action against EMCOR. EMCOR
is currently engaged in discussions with the SEC staff concerning a possible
consensual resolution of the matter.
NEW YORK COUNTY DISTRICT ATTORNEY INVESTIGATIONS
In connection with an investigation of the plumbing industry being
conducted by the New York County District Attorney's Office, two related
subsidiaries of EMCOR engaged in the plumbing business in New York City have
received subpoenas for certain of their books and records. The subsidiaries
have complied with those subpoenas. Additionally, certain employees of the two
subsidiaries have been subpoenaed to testify as witnesses before a grand jury,
and the employees have complied with the subpoenas.
As part of an investigation by the District Attorney's Office of New York
County into the business affairs of a general contractor that does business with
the Company's subsidiary, Forest Electric Corp. ("Forest"), in February 1995, a
search warrant was executed at Forest's executive offices. The Company has been
informed that Forest and certain of its officers are targets of the
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law.
DYNALECTRIC LITIGATION
The Dynalectric Company ("Dynalectric") is a defendant in an action
entitled Computran v. Dynalectric, et al., pending in Superior Court of New
Jersey, Bergen County, arising out of its participation in a joint venture. The
plaintiff, Computran, a participant in, and a subcontractor to, the joint
venture, alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with other defendants to commit certain acts in violation of the
New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric
believes that Computran's claims are without merit and intends to defend this
matter vigorously. Dynalectric has filed counterclaims against Computran.
Discovery is ongoing; no trial date is scheduled.
LITIGATION REGARDING WARRANTS OF PARTICIPATION
On September 26, 1994 certain holders of Warrants of Participation
("Warrants") that were issued pursuant to a Warrant Agreement dated June 15,
1969 by the Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"),
commenced a declaratory judgment action against the Company's wholly-owned
subsidiary Jamaica Water Securities Corporation ("JWSC") by filing a complaint
in the Supreme Court of the State of New York, Westchester County, bearing the
caption, Harold F. Scattergood, Jr., et al. v. Jamaica Water Securities Corp.
(Index No. 15992/94). On October 17, 1994, an amended complaint (the
"Complaint") was served adding additional plaintiffs.
Plaintiffs seek a declaration that JWSC is the successor to the Company's
obligations under the Warrant Agreement by reason of its 1977 acquisition of
JWU's 96% stock interest in Jamaica Water Supply Company. Plaintiffs also claim
that three events have triggered the Warrants, obligating JWSC to issue shares
of its own stock to plaintiffs: (1) the 1988 filing by the City of New York of
a condemnation proceeding and lis pendens seeking to condemn that part of water
distribution system of Jamaica Water Supply Company
-45-
<PAGE>
located in Queens County; (2) the prosecution of that condemnation proceeding,
which was subsequently dismissed by the court; and (3) a 1993 settlement
agreement entered into by JWSC and of Jamaica Water Supply Company which settled
unrelated matters involving the Public Service Commission, Nassau County and
others. Plaintiffs claim that each of these events constituted a disposition of
the assets of Jamaica Water Supply Company which triggered the Warrants. In the
alternative, plaintiffs claim that the Warrant Agreement's December 31, 1994
expiration date should be extended for some indefinite period. The Company has
moved to dismiss the Complaint on the grounds that it fails to state a cause of
action.
JAMAICA WATER SUPPLY COMPANY
Rate Related Proceedings and Related Litigation. Effective March 1991,
Jamaica Water Supply Company ("JWS") was authorized by the Public Service
Commission of the State of New York (the "Public Service Commission") to
increase its rates charged to customers by amounts designed to increase annual
revenues by $3,992,000. At that time the Public Service Commission made
$2,000,000 of that increase temporary and subject to refund pending a further
review by the Public Service Commission. Upon completion of its review, in July
1992, the Public Service Commission ordered JWS to refund to its customers all
of the amounts collected under the temporary portion of the rate increase during
the period from March 1991 through June 1992. In addition, the Public Service
Commission ordered JWS to reduce the rates charged customers, as initially
authorized effective March 1991, by amounts designed to reduce annual revenues
by $1,400,000 effective July 1, 1992. During the third quarter of 1992, JWS,
which had not recorded as revenue any of the amounts collected under the
temporary portion of the rate increase, made the required refund, aggregating
$2,900,000 including interest, by way of credits to customers' bills.
In January 1992, the Public Service Commission ordered its Staff to perform
an audit covering all aspects of JWS's operations. The report on that audit
alleged that mismanagement and imprudence on the part of JWS may have resulted
in excess charges to the customers of up to $10,600,000. As a result of the
audit report, in June 1992, the Public Service Commission instituted a
proceeding requiring JWS to demonstrate that its rates charged customers are not
excessive and providing for an investigation of JWS's management practices. As
part of this proceeding, and citing the audit report's assertions without
receiving the audit report in evidence, the Public Service Commission ordered
that $10,600,000 of JWS's annual revenues be made temporary and subject to
refund, effective August 6, 1992, pending the completion of the investigation.
Between December 1992 and May 1993, each of JWS, the Public Service
Commission Staff, the New York State Consumer Protection Board, Waterbill
Watchdogs, Inc., the County of Nassau, the Town of Hempstead, the New York City
Department of Environmental Protection and the New York City Water Board
appeared and submitted testimony in the Public Service Commission proceedings.
On June 3, 1993, the Public Service Commission issued an order suspending
hearings and appointing two administrative law judges for the purpose of
effecting a settlement. Negotiations among the parties and through the
settlement judges were ongoing from that time.
In addition, in February 1993, the County of Nassau commenced an action
alleging violation of the Racketeer Influenced and Corrupt Organizations Act
("RICO") and common law fraud based on allegations that JWS intentionally filed
false rate applications and, as a result, had earnings that exceeded projections
by $8,653,000. The complaint demanded treble damages and punitive damages.
As a result of the negotiations ordered by the Public Service Commission,
all of the foregoing parties entered into a settlement agreement dated December
22, 1993 (the "Settlement Agreement"), which, following approval by the Public
Service Commission on February 2, 1994, settled all issues outstanding before
the Public Service Commission, various state courts, and in the RICO action.
The Settlement Agreement provides, among other things, (i) that JWS will use its
best efforts to bring about the separation of Jamaica Water Securities Corp.
("JWSC"), a subsidiary of EMCOR, which holds substantially all of the common
stock of JWS, from EMCOR and that JWSC will submit plans to the Public Service
Commission for its separation
-46-
<PAGE>
from EMCOR and the formation of a separate waterworks corporation to be
incorporated under the New York Transportation Corporations Law to provide water
utility service to the Nassau County customers served by JWS, (ii) a commitment
by JWS that, subject to limited specified exceptions, it will not seek to have a
general rate increase become effective prior to January 1, 1997, thus providing
rate stability for three years, (iii) for refunds and other payments to
customers estimated to aggregate approximately $11.7 million over the 1994-1997
period, and (iv) a cap on earnings above which JWS will share with its customers
its return on equity.
New York City Condemnation Proceeding. From time to time representatives
of New York City (the "City") and EMCOR met to discuss a possible purchase by
the City of that portion of JWS's water distribution system which is located in
the City. That system constitutes approximately 75% of JWS's water plant.
In September 1986, the State of New York enacted a law that requires the
City to acquire by condemnation all of the property of JWS "constituting or
relating to [its] water distribution system located in the City of New York"
only in the event of a decision by the Supreme Court of the State of New York
that the amount of compensation to be paid JWS for the water distribution system
"shall be determined solely by the income capitalization method of valuation,
based on the actual net income as allowed (to JWS) by the [New York State]
public service commission." In addition, the law provides that if any court
determines "that a method of compensation other than the income capitalization
method be utilized, or if the proposed award is more than the [JWS] rate base of
the [condemned] assets . . . as utilized by the public service commission in
setting rates," the City may withdraw the condemnation proceeding without
prejudice or costs. As of December 31, 1987, the rate base of those assets
located in the City was approximately $53,084,000 exclusive of water meters
currently under lease which may be required to be purchased in the event of
condemnation.
In April 1988, the City instituted a proceeding in the Supreme Court of the
State of New York pursuant to the 1986 statute. The City sought, in the first
instance, an order providing that the income capitalization method of valuation
would be the sole method used to determine compensation for JWS's property, and,
on that basis, asked the Court to determine the value of the JWS property to be
condemned. Pursuant to the 1986 law, if the Court were to determine
compensation that exceeds the rate base or were to determine compensation by a
method other than the income capitalization method, the City could withdraw the
condemnation proceeding. JWS argued, at trial and in its post-trial memorandum,
that the judicially recognized method of valuing public utility property is by
the Reproduction Cost New, Less Depreciation ("RCNLD") for tangible and
intangible assets in order to determine just compensation for the JWS property
in the City. JWS also sought consequential and severance damages that would
result from separating the JWS Nassau County water supply system from that in
the City. The aggregate compensation sought by JWS as of December 31, 1987 was
$923,966,341, consisting of $846,625,285 RCNLD, $49,670,056 consequential and
severance damages and $27,671,000 as the fair market value of the land owned by
JWS. The City submitted its income capitalization valuation, as of December 31,
1987, at $62,500,000. The evidentiary hearings in the proceedings were
concluded and JWS reserved its right to contest the constitutionality of the
statute.
Subsequent to the trial, the Court requested that the parties address the
constitutionality of the statute. After a joint post-hearing submission from
JWS and the City contending that the statute was constitutional, the Supreme
Court sua sponte, by decision dated June 21, 1993, dismissed the City's petition
and held, inter alia, that "insofar as the legislature has directed this Court
to make . . . a decision [on valuation only prior to any taking] through General
City Law 20(2), that statute is unconstitutional", because such a decision would
be advisory. Aware that a constitutional challenge to a nearly identical
condemnation statute involving Saratoga County, was pending in the appellate
courts, neither JWS nor the City served a notice of entry of the dismissal order
that would commence the period within which an appeal could be taken.
On February 24, 1994, the New York Court of Appeals held the nearly-
identical Saratoga County related statute to be constitutional. On April 6,
1994, a conference was held with the Supreme Court
-47-
<PAGE>
pursuant to the City's request to reconsider its JWS decision in light of the
Court of Appeals February 24, 1994 decision. At the April 6, 1994 conference,
the Court stated it would, as requested by the City, reconsider its June 21,
1993 decision. The Court further stated that in the event it decided to withdraw
its June 21, 1993 decision that it would then take the proceedings under further
consideration.
EMCOR cannot predict when or if the Supreme Court will conduct further
proceedings under the statute, what the decision of the Supreme Court might be
if it decides to value the JWS property, or the effect of the pending litigation
on the ability to sell or the timing of the sale of JWS.
ITEM 9. MARKET PRICE OF AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
-------------------------------------------------------------------
MARKET INFORMATION
There is no established public trading market at present for the New Common
Stock. The Company will apply in the future for inclusion of the New Common
Stock in the National Association of Securities Dealers' Automated Quotation
System ("NASDAQ").
As of April 25, 1995, 5,485,719 shares of New Common Stock were issued and
outstanding and 3,938,364 shares were held by the Company pending distribution
pursuant to the Plan of Reorganization.
HOLDERS
The number of holders of record of New Common Stock as of April 25, 1995
was approximately 79.
DIVIDENDS
The Company did not pay dividends on the prepetition common stock during
1993 or 1992 and it does not anticipate that it will pay any dividends on the
New Common Stock in the foreseeable future. The Series A Notes prohibit the
payment of dividends on the New Common Stock and the Series C Notes provide that
dividends are limited to 50% of Consolidated Net Income (as defined) for the
period from the Effective Date to the most recently ended fiscal quarter.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
The New Common Stock, the New Notes and the New Warrants have been issued
pursuant to the Plan of Reorganization on the Effective Date in satisfaction of
various claims against, or interests in, the Company allowed by the Bankruptcy
Court. In reliance on the exemptions provided by section 1145 of the United
States Bankruptcy Code, none of such securities were registered under the
Securities Act of 1933, as amended (the "Securities Act") in connection with
their issuance and distribution pursuant to the Plan of Reorganization.
On March 6, 1992, $60 million principal amount of 9.10% Senior Notes due
2002 (the "Notes") were issued by the Company to nine insurance companies. The
offering of Notes was made pursuant to Section 4(2) of the Securities Act which
exempts from registration transactions not involving a public offering. The
following are the original purchasers of the Notes: The Prudential Insurance
Company, American General Life and Accident Insurance Company, The Ohio National
Life Insurance Company, Modern Woodmen of America, The Paul Revere Life
Insurance Company, The Paul Revere Protective Life Insurance Company, The
-48-
<PAGE>
Union Central Life Insurance Company, The Paul Revere Variable Annuity Insurance
Company, and the Manhattan Life Insurance Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
-------------------------------------------------------
AUTHORIZED CAPITAL STOCK
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") provides that the total number of all classes of stock which the
Company shall have authority to issue is Thirteen Million Seven Hundred Thousand
(13,700,000) shares of New Common Stock, par value $.01 per share. As of April
25, 1995, 5,485,719 shares of New Common Stock had been issued and were
outstanding and 3,938,364 shares were held by the Company pending distribution
pursuant to the Plan of Reorganization.
NEW COMMON STOCK
Each share of New Common Stock has one vote and, except as may be otherwise
provided by the General Corporation Law of the State of Delaware (the "General
Corporation Law"), the exclusive voting power for all purposes is fixed in the
holders of the New Common Stock. The holders of record of the New Common Stock
are entitled to receive, when, if and as declared by the Board of Directors, but
only out of funds legally available for the payment of dividends, such dividends
of cash or in property, including securities of the Company, as the Board of
Directors shall from time to time declare. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Company, the holders of the New Common Stock would be entitled to share ratably
(i.e., an equal amount of assets for each share of New Common Stock) in the
remaining assets of the Company.
Subject to the provisions of the General Corporation Law, the Company may
issue its New Common Stock from time to time for such consideration (not less
than the par value thereof) as may be fixed by the Board of Directors, which is
expressly authorized to fix the same at its discretion. Shares so issued for
which the consideration has been paid or delivered to the Company shall be
deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares. Notwithstanding anything to the
contrary set forth in the Charter, the Company shall not issue any non-voting
equity securities; provided, however, that this provision, included in the
Charter in compliance with Section 1123(a)(6) of the Bankruptcy Code, shall have
no force and effect beyond that required by Section 1123(a)(6) of the Bankruptcy
Code and shall be effective only for so long as Section 1123(a)(6) of the
Bankruptcy Code is in effect and applicable to the Company.
Whenever a compromise or arrangement is proposed between the Company and
its creditors or any class of them and/or between the Company and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the Company or
any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Company under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Company under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders, of the
Company, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Company, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Company as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Company, as the case may
be, and also on the Company.
-49-
<PAGE>
CERTAIN CORPORATE GOVERNANCE MATTERS
Except as the General Corporation Law or the By-Laws of the Company may
otherwise provide, the holders of a majority of the outstanding shares of stock
entitled to vote shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any stockholders.
Each stockholder entitled to vote in accordance with the terms of the
Charter and By-laws shall be entitled to one vote, in person or by proxy, for
each share of stock entitled to vote held by such stockholder. In the election
of Directors, a plurality of the votes present at the meeting shall elect.
Election of Directors need not be by written ballot, unless the By-Laws of the
Company so provide. Any other action shall be authorized by a majority of the
votes cast except where the Charter or the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power.
Action shall be taken by stockholders of the Company only at a duly called
annual or special meeting of stockholders of the Company and stockholders may
not act by written consent. Voting by ballot shall not be required for
corporate action except as otherwise provided by the General Corporation Law.
In furtherance and not in limitation of the powers conferred under the
General Corporation Law, the Board of Directors of the Company is expressly
authorized to make, alter or repeal By-Laws not inconsistent with law or with
the Charter.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The Company's Charter provides that the personal liability of directors of
the Company to the Company is eliminated to the fullest extent permitted by
Section 102(b)(7) of the General Corporation Law, as the same may be amended and
supplemented. The Company's Charter provides for the indemnification of, to the
fullest extent permitted by the General Corporation Law, all persons who may be
indemnified by the Company under the General Corporation Law, which would
include the directors, officers, employees and agents of the Company. The
indemnification provided by the Company's Charter does not limit or exclude any
rights, indemnities or limitations of liability to which any person may be
entitled, whether as a matter of law, under the By-Laws of the Company, by
agreement, vote of the stockholders or disinterested directors of the Company or
otherwise. The Company's Charter also does not absolve directors of liability
(1) for any breach of the directors' duty of loyalty to the Company or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the General Corporation Law, which makes directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect to
such liability, or (4) for any transaction from which the director derived any
improper personal benefit.
Under Delaware law, directors, officers, employees and other individuals
may be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with specified actions, suits
or proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation (a "derivative action")) if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such an action and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the Company.
-50-
<PAGE>
The Company has entered into indemnification agreements with its directors
and officers, a form of which has been filed as an Exhibit to this Registration
Statement, pursuant to which the Company has agreed to indemnify such directors
and officers to the fullest extent permitted by Delaware law, as the same may be
amended from time to time.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See "Item 15. Financial Statements and Exhibits" and the Consolidated
Financial Statements which begin on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
--------------------
See Index to Consolidated Financial Statements and Schedules which appears
on page F-1 hereof.
(b) Exhibits
--------
The exhibits listed on the Exhibit Index following the Consolidated
Financial Statements hereof are filed herewith in response to this Item.
-51-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to a Registration
Statement on Form 10 to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 1, 1995
EMCOR GROUP, INC.
By:/s/ Frank T. MacInnis
-----------------------------------------
Name: Frank T. MacInnis
Title: Chairman of the Board,
President and Chief Executive Officer
-52-
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements:
Independent Auditors' Report..................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993..... F-4
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1993 and 1992........................... F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992........................... F-7
Consolidated Statements of Shareholders' Equity (Deficit)
as of December 31, 1994, 1993 and 1992........................... F-9
Notes to Consolidated Financial Statements....................... F-11
Schedules:
Schedule I - Condensed Financial Information of EMCOR
Group, Inc. ....................................... S-I-1
Schedule II - Valuation and Qualifying Accounts.................. S-II-1
</TABLE>
F-1
<PAGE>
[LOGO OF DELOITTE & TOUCHE LLP GOES HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of EMCOR Group, Inc.
We have audited the accompanying Consolidated Balance Sheets of EMCOR Group,
Inc. (formerly JWP INC.) and its subsidiaries (the "Company") as of December 31,
1994 and 1993, and the related Consolidated Statements of Operations,
Shareholders' Equity (Deficit) and Cash Flows for the years then ended. Our
audit also included the financial statement schedules for the year ended
December 31, 1994 listed in the Index at Item 15(a). These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to report on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our report dated July 8, 1994, we did not express an opinion on the 1993
consolidated financial statements due to the material uncertainties related to
the Company's ability to continue as a going concern because the Company had
experienced significant losses from operations for each of the years ended
December 31, 1993 and 1992, had negative working capital and a deficit in
shareholders' equity and because of the possible material effects of
uncertainties related to the net realizable value of assets of discontinued
operations, claims filed against the Company, and the possible consequences of
the bankruptcy proceedings. As discussed in Note A to the consolidated
financial statements, during December 1994 the Company emerged from Chapter 11
of the Federal Bankruptcy Code. The emergence from bankruptcy resulted in a
significant reduction in debt, the obtaining of a new credit agreement and the
valuing of the Company at its new reorganization value resulted in positive
shareholders' equity versus a pre-emergence deficit of $324.0 million.
Accordingly, our present opinion on the 1993 consolidated financial statements,
as expressed herein, is different from our prior report on the 1993 consolidated
financial statements.
As discussed in Notes A and F to the consolidated financial statements, the
Company emerged from Chapter 11 of the U.S. Bankruptcy Code on December 15,
1994. Accordingly, the accompanying financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants
F-2
<PAGE>
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." The Company accounted for the Reorganization as of
December 31, 1994 and adopted "Fresh-Start Reporting." As a result, the
December 31, 1994 consolidated balance sheet is not comparable to prior periods
since it presents the consolidated financial position of the reorganized entity.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1993, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As more fully described in Note X to the consolidated financial statements, the
Company is involved with certain legal proceedings. The Company is presently
unable to predict the outcome of these proceedings, and the impact, if any, that
the ultimate resolution of such matters will have upon the Company and its
consolidated financial statements.
As discussed in Note Y to the consolidated financial statements, the Company
changed its method of accounting for post-employment benefits effective January
1, 1994.
/s/ Deloitte & Touche LLP
March 17, 1995
F-3
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1994 | 1993
|
<S> <C> | <C>
CURRENT ASSETS: |
Cash and cash equivalents $ 52,505 | $ 39,534
Accounts receivable, less allowance for doubtful |
accounts of $19,820 and $31,170 438,958 | 455,944
Costs and estimated earnings in excess of billings on |
uncompleted contracts 52,347 | 61,987
Inventories 6,910 | 5,221
Prepaid expenses and other 8,115 | 13,240
Net assets held for sale 55,401 | 20,454
-------- | --------
|
Total current assets 614,236 | 596,380
-------- | --------
|
NET ASSETS HELD FOR SALE - | 63,161
|
INVESTMENTS, NOTES AND OTHER |
LONG-TERM RECEIVABLES 6,122 | 19,737
|
PROPERTY, PLANT AND EQUIPMENT - Net 33,670 | 39,266
|
OTHER ASSETS: |
Excess of cost of acquired businesses |
over net assets, less amortization - | 58,973
Insurance cash collateral 37,577 | 21,394
Funds held in escrow 8,649 | 335
Miscellaneous 7,244 | 7,196
-------- | --------
|
53,470 | 87,898
-------- | --------
|
TOTAL ASSETS $707,498 | $806,442
======== ========
</TABLE>
(Continued)
F-4
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1994 | 1993
|
<S> <C> | <C>
CURRENT LIABILITIES: |
Notes payable $ 4,803 | $ 172
Borrowings under working capital credit line 40,000 | -
Current maturities of long-term debt and capital lease obligations 2,089 | 2,327
7% Senior Secured Notes (Series A) 55,401 | -
Debt in default - | 501,007
Accounts payable 219,564 | 209,867
Billings in excess of costs and estimated earnings on |
uncompleted contracts 115,567 | 115,179
Accrued payroll and benefits 38,914 | 37,939
Other accrued expenses and liabilities 45,660 | 182,213
-------- | ----------
|
Total current liabilities 521,998 | 1,048,704
-------- | ----------
|
LONG-TERM DEBT 59,782 | 2,538
|
OTHER LONG-TERM OBLIGATIONS 44,588 | 57,462
|
SHAREHOLDERS' EQUITY (DEFICIT): |
Common Stock, $.01 par value, 13,700,000 shares |
authorized, 9,424,083 shares issued or issuable under |
the Plan of Reorganization 94 | -
Warrants 2,179 | -
Old Preferred Stock, $1 par value, 25,000,000 shares |
authorized, 425,000 shares of Series A issued and outstanding - | 21,250
Old Common Stock, $.10 par value, 75,000,000 shares |
authorized, 40,715,541 shares issued and outstanding, |
excluding treasury shares of 727,389 - | 4,072
Old Warrants of Participation - | 576
Capital surplus 78,857 | 204,247
Cumulative translation adjustment - | (6,068)
Accumulated deficit - | (526,339)
-------- | ----------
|
Total shareholders' equity (deficit) 81,130 | (302,262)
-------- | ----------
TOTAL LIABILITIES AND |
SHAREHOLDERS' EQUITY (DEFICIT) $707,498 | $ 806,442
======== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
REVENUES $1,763,961 $2,194,735 $2,404,577
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 1,607,589 2,043,558 2,160,723
Selling, general and administrative 178,575 216,709 440,725
Restructuring charges - - 38,741
---------- ---------- ----------
1,786,164 2,260,267 2,640,189
---------- ---------- ----------
OPERATING LOSS (22,203) (65,532) (235,612)
Interest expense (3,867) (51,075) (45,894)
Interest income 1,391 888 1,713
Net gain (loss) on businesses sold or held for sale 1,183 1,028 (76,078)
Loss on investment (4,452) - -
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS, INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (27,948) (114,691) (355,871)
---------- ---------- ----------
REORGANIZATION ITEMS:
Professional fees (12,535) - -
Fresh-start adjustments (78,783) - -
---------- ---------- ----------
(91,318) - -
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS INCLUDING
REORGANIZATION ITEMS, BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES (119,266) (114,691) (355,871)
INCOME TAX (BENEFIT) PROVISION (332) (700) 7,644
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS INCLUDING
REORGANIZATION ITEMS, BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES (118,934) (113,991) (363,515)
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Income (loss) from operations, net of income taxes 10,216 11,263 (203,739)
Loss from disposal of businesses, net of income taxes - (20,350) (49,491)
---------- ---------- ----------
Income (loss) from discontinued operations 10,216 (9,087) (253,230)
---------- ---------- ----------
EXTRAORDINARY ITEM - Gain on debt discharge 413,249 - -
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR:
Post-employment benefits (2,100) - -
Income taxes - - 4,315
---------- ---------- ----------
NET INCOME (LOSS) $ 302,431 $ (123,078) $ (612,430)
========== ========== ==========
SUPPLEMENTAL INCOME (LOSS) PER SHARE(1):
Continuing operations before extraordinary item $(12.62) * *
Discontinued operations:
Income from operations 1.08 * *
Extraordinary item 43.85 * *
Cumulative effect of change in method of accounting for:
Post-employment benefits (0.22) * *
------
Net income $32.09 * *
======
</TABLE>
(1) Historical per share data has not been presented as it is not meaningful
since the Company has been recapitalized and adopted Fresh-Start Reporting
as of December 31, 1994.
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 302,431 $(123,078) $(612,430)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,724 35,246 68,993
Restructuring charges applicable to continuing operations - - 38,741
Restructuring charges applicable to discontinued operations - - 25,950
Net (gain) loss from businesses sold or held for sale (1,183) (1,028) 76,078
Provision for losses on accounts and other receivables - 13,663 113,903
Inventory valuation adjustments - - 59,787
Write-off of deferred debt issuance cost - - 2,876
Write-off of fixed assets and miscellaneous assets - - 11,167
Write-off of goodwill and other intangibles - - 54,873
Write-down of investment 4,452 - -
Stock compensation - 727 9,518
Deferred income taxes - 4,138 7,137
Loss from disposal of discontinued operations - 20,350 49,491
Equity and other losses in unconsolidated affiliate - - 5,690
Cumulative effect of accounting for:
Income taxes - - (4,315)
Post-employment benefits 2,100 - -
Other, net - 2,411 21,112
---------- ---------- ----------
323,524 (47,571) (71,429)
Change in Operating Assets and Liabilities Excluding
Effect of Businesses Disposed of and Acquired:
Decrease in accounts receivable 9,172 41,286 73,379
(Increase) decrease in inventories and contracts in progress (6,879) 35,292 123,884
Increase (decrease) in accounts payable and accrued expenses 22,703 (73,563) (190,752)
Changes in other assets and liabilities (20,703) 17 15,335
Changes due to reorganization activities:
Reorganization charges 12,535 - -
Gain on discharge of debt (413,249) - -
Net adjustments to accounts for fair value 78,783 - -
---------- ---------- ----------
Net Cash Provided by (Used in) Operations 5,886 (44,539) (49,583)
---------- ---------- ----------
</TABLE>
(Continued)
F-7
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital credit lines $ 40,000 $ - $ -
Proceeds from long-term debt - 710 85,302
Proceeds from debtor-in-possession financing 30,000 - -
Payment of debtor-in-possession financing (30,000) - -
Cash deposited in trust account for funding of
post-bankruptcy debt (15,940) - -
Payments of long-term debt and capital lease obligations (1,430) (6,027) (68,514)
Repayment of Series B Notes and partial
Series A Note repayment (16,054) - -
Redemption of preferred stock of subsidiary company - (500) -
Increase (decrease) in notes payable, net 4,474 (19,269) 30,258
Debt issuance costs (900) - -
Proceeds from issuance of common stock
and exercise of stock options - - 1,911
Payment of preferred dividends - - (1,354)
Acquisition of common stock for the treasury - - (8,130)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities 10,150 (25,086) 39,473
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses and other assets 13,620 43,400 138,971
Acquisitions of businesses, net of cash acquired - - (15,899)
Purchase of property, plant and equipment (4,164) (17,329) (36,411)
Purchase of environmental facilities - - (32,044)
Net disbursements for other investments (2,442) - (9,695)
Change in cash balance of businesses held for sale or sold (10,079) (3,748) (26,241)
Other, net - - 1,672
-------- -------- --------
Net Cash (Used in) Provided by Investing Activities (3,065) 22,323 20,353
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents 12,971 (47,302) 10,243
Cash and Cash Equivalents at Beginning of Year 39,534 86,836 76,593
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 52,505 $ 39,534 $ 86,836
======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
(Concluded)
F-8
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OLD
NEW OLD OLD WARRANTS
COMMON PREFERRED COMMON OF NEW
STOCK STOCK STOCK PARTICIPATION WARRANTS
----- --------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1992 $ - $ 21,250 $ 4,018 $ 576 $ -
Common stock
issued in
connection with
acquisitions - - 10 - -
Exercise of stock
options - - 14 - -
Acquisition of
common stock
for the treasury - - (57) - -
Guaranteed future
value of stock
issued to acquire
businesses - - - - -
Deferred compensation
and officer bonus - - 55 - -
Foreign currency trans-
lation adjustment - - - - -
Preferred stock dividends - - - - -
Other, net - - 35 - -
Net loss - - - - -
----- ------- -------- ----- -------
BALANCE,
DECEMBER 31,
1992 - 21,250 4,075 576 -
Deferred compen-
sation - - 9 - -
Foreign currency trans-
lation adjustment - - - - -
Preferred stock
dividends - - - - -
Other, net - - (12) - -
Net loss - - - - -
----- ------- -------- ----- -------
BALANCE,
DECEMBER 31,
1993 - 21,250 4,072 576 -
Foreign currency
translation
adjustment - - - - -
Exchange of
preferred stock
for common stock - (345) 1 - -
Net income - - - - -
Exchange of stock
and fresh-start
adjustments 94 (20,905) (4,073) (576) 2,179
----- -------- -------- ----- -------
BALANCE,
DECEMBER 31,
1994 $ 94 $ - $ - $ - $ 2,179
===== ======== ======== ===== =======
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE RETAINED SHARE-
TRANS- EARNINGS HOLDERS'
CAPITAL LATION (ACCUMULATED EQUITY
SURPLUS ADJUSTMENTS DEFICIT) (DEFICIT)
------- ----------- ------- -------
<S> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1992 $ 212,703 $ 4,807 $ 212,782 $ 456,136
Common stock
issued in
connection with
acquisitions 739 - - 749
Exercise of stock
options 1,897 - - 1,911
Acquisition of
common stock
for the treasury (8,073) - - (8,130)
Guaranteed future
value of stock
issued to acquire
businesses (12,308) - - (12,308)
Deferred compensation
and officer bonus 9,463 - - 9,518
Foreign currency tran-
lation adjustment - (8,737) - (8,737)
Preferred stock dividends - - (1,807) (1,807)
Other, net (916) - - (881)
Net loss - - (612,430) (612,430)
------- ------- --------- ---------
BALANCE,
DECEMBER 31,
1992 203,505 (3,930) (401,455) (175,979)
Deferred compen-
sation 718 - - 727
Foreign currency trans-
lation adjustment - (2,138) - (2,138)
Preferred stock
dividends - - (1,806) (1,806)
Other, net 24 - - 12
Net loss - - (123,078) (123,078)
------- ------- --------- ---------
BALANCE,
DECEMBER 31,
1993 204,247 (6,068) (526,339) (302,262)
Foreign currency
translation
adjustment - (173) - (173)
Exchange of
preferred stock
for common stock 344 - - -
Net income - - 302,431 302,431
Exchange of stock
and fresh-start
adjustments (125,734) 6,241 223,908 81,134
--------- ------- --------- --------
BALANCE,
DECEMBER 31,
1994 $ 78,857 $ - $ - $ 81,130
========= ======= ========= ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-10
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
(FORMERLY JWP INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1993 AND 1992
- --------------------------------------------------------------------------------
NOTE A BASIS OF PRESENTATION
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, prepetition creditors of the
Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the common stock of EMCOR. The prepetition holders of the Company's subordinated
debt, common and preferred stock and warrants of participation received warrants
to purchase common stock of EMCOR in exchange for their debt and equity
interests.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or
reserved for issuance to prepetition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR senior bank and institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a
debtor-in-possession credit facility to the Company, the following securities:
(i) 9,424,083 shares of newly authorized common stock of the Company ("New
Common Stock") (constituting 100% of the issued and outstanding shares as of the
Effective Date); (ii) approximately $62.2 million principal amount of 7% Senior
Secured Notes, Series A, due 1997 of the Company ("Series A Notes") issued on
the Effective Date and up to a maximum of $8.8 million additional principal
amount of Series A Notes which are reserved for issuance to holders of general
unsecured claims and to Belmont upon resolution of disputed and unliquidated
prepetition general unsecured claims (assuming such claims are ultimately
allowed in full). The Company recorded the Series A Notes based upon an assumed
total of $100 million of pre-petition general unsecured claims after settlement
of disputed and unliquidated pre-petition general unsecured claims; (iii)
approximately $11.9 million principal amount of 7% Senior Secured Notes, Series
B, due 1997 ("Series B Notes"); (iv) approximately $62.8 million principal
amount of 11% Notes, Series C, due 2001 of the Company ("Series C Notes"); and
(v) approximately $48.1 million principal amount of 12% Subordinated Contingent
Payment Notes due 2004 of SellCo (the "SellCo Notes"). The entire $11.9 million
principal amount of Series B Notes and approximately $4.1 million principal
amount of the Series A Notes issued on the Effective Date were immediately
redeemed on that date at their face amount in accordance with their terms from
the proceeds realized from the sale and liquidation of certain subsidiaries, the
stock of which would have been pledged as part of the collateral securing the
Series B Notes had such subsidiaries not been sold (and an additional $600,000
of such proceeds was reserved for redemption of certain of the Series A Notes
reserved for disputed and unliquidated claims).
From February 14, 1994 to the Effective Date, the Company was a debtor-in-
possession under Chapter 11 of the U.S. Bankruptcy Code. The accompanying
Consolidated Financial Statements were prepared on the basis of the principles
prescribed by the American Institute of Certified Public Accountants' Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code." As a result, during 1994 the liabilities compromised in the
bankruptcy proceeding were classified to "Pre-consent date bankruptcy claims
subject to compromise". As of December 21, 1993, the Company ceased to accrue
interest on its debt in default. See Note C for further discussion of the debt
in default.
F-11
<PAGE>
As of December 31, 1994, in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"), the Company adopted "Fresh-Start Reporting."
Prior to the commencement and during the continuation of the Company's Chapter
11 proceeding, the Company experienced significant constraints in its surety
bonding lines that adversely affected its operations. The surety bonding
companies that provide bid and performance bonds for the Company reviewed and
continue to review bond requests on a case-by-case basis. The Company's surety
bonding companies have become more selective in issuing surety bonds for large
construction projects, typically in excess of $10.0 million, and those with a
duration of more than three years. The Company's surety bonding companies will
generally not bond new projects for the Company's businesses held for sale.
In addition, a surety bonding company that was a primary source of surety bonds
for the Dynalectric Companies, wholly-owned subsidiaries of the Company,
terminated its surety business as of January 1994. As a result, these
subsidiaries were without any surety bonding facilities for most of 1994. In
November 1994 the Company entered into an arrangement with a new surety bonding
company to provide surety bonds for the Dynalectric Companies. The Dynalectric
Companies accounted for approximately 21% of the Company's revenues for the year
ended December 31, 1994 attributable to mechanical and electrical subsidiaries
EMCOR plans to retain. The absence of available surety bonding for the
Dynalectric Companies resulted in a significant reduction in their backlog. The
new surety bonding arrangement should allow the Dynalectric Companies to obtain
new contracts thereby increasing backlog.
During the third and fourth quarters of 1994, the Company wrote down its
investment in Health Care International Ltd. ("HCI"), a Scottish hospital, due
to its deteriorating financial condition. HCI was placed in receivership in
November, 1994.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). See Note Y.
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not
to proceed with the sale due to uncertainties created by the then pending rate-
related proceedings and litigation which are described in Note X. In December
1993, the Company's principal water supply subsidiary, Jamaica Water Supply
Company ("JWS"), entered into an agreement with respect to the rate-related
proceedings and litigation thereby eliminating significant uncertainties
relating to the water supply business. This agreement was approved by the New
York State Public Service Commission on February 2, 1994. Accordingly, in the
first quarter of 1994 the Company reinstated its plan of sale. The Company is
actively pursuing the sale of its water supply business. In 1993, the Company
sold substantially all of its information services businesses. Operating
results for all periods presented reflect the Company's information services and
water supply businesses as discontinued operations (see Note P).
As indicated above and in Notes P and Q, the Company developed and implemented a
business restructuring plan which presently includes the sale of its water
supply business, certain mechanical services business units and non-core
businesses. The net assets of businesses to be sold have been classified in the
Consolidated Balance Sheets as of December 31, 1994 and 1993 as "Net assets held
for sale" and carried as either current or long-term assets on the basis of
their actual or expected disposition dates.
F-12
<PAGE>
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has implemented the recommended accounting for entities emerging
from Chapter 11 reorganization set forth in SOP 90-7. See Note F.
PRINCIPLES OF CONSOLIDATION - The Consolidated Financial Statements include the
accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION - Revenues on long-term contracts are recognized on the
percentage-of-completion method. Percentage-of-completion for the mechanical
contracting business is measured principally by the percentage of costs incurred
and accrued to date for each contract to the estimated total costs for each
contract at completion ("cost to cost"). Certain of the Company's electrical
contracting business units measure percentage of completion by the percentage of
labor costs incurred and accrued to date for each contract to the estimated
total labor costs for such contract, while others are on the cost to cost
method. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in contract performance
and estimated profitability, including those arising from contract penalty
provisions and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Accounts receivable at December 31, 1994 and 1993, include $67.2 million and
$90.4 million, respectively, of retainage billed under the terms of the
contracts. In accordance with industry practice, certain of these receivables
relate to contracts having production cycles longer than one year and,
therefore, a portion will not be realized within the year. Disputes involving
customers often arise in the normal course of the Company's business, primarily
on projects where the Company is a subcontractor and is contesting with general
contractors, owners or both for additional funds because of events such as
delays or changes in contract specifications. Such disputes, whether for claims
or for unapproved change orders in process of negotiation, are recorded at their
estimated net realizable value when realization is probable and can be
reasonably estimated. Claims against the Company are recognized when a loss is
considered probable and amounts are reasonably determinable. Accounts
receivable and costs and estimated earnings in excess of billings on uncompleted
contracts at December 31, 1994 and 1993, include claims and change orders in the
process of negotiation which aggregate approximately $69.0 million and $51.2
million, respectively, net of valuation allowances. A portion of these
receivables may not be realized within one year.
Costs and estimated earnings on uncompleted contracts and related amounts billed
as of December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 | 1993
---------------------------
(in thousands)
<S> <C> <C>
Costs incurred on uncompleted contracts $2,853,799 | $3,031,225
Estimated earnings 195,508 | 238,869
---------- | ----------
3,049,307 | 3,270,094
|
Less billings to date 3,112,527 | 3,323,286
---------- | ----------
|
$ (63,220) | $ (53,192)
========== | ==========
</TABLE>
F-13
<PAGE>
Such amounts are included in the accompanying Consolidated Balance Sheets under
the following captions:
<TABLE>
<CAPTION>
1994 | 1993
------------------------
(IN THOUSANDS)
<S> <C> <C>
Costs and estimated earnings in excess of |
billings on uncompleted contracts $ 52,347 | $ 61,987
|
Billings in excess of costs and estimated |
earnings on uncompleted contracts (115,567) | (115,179)
---------- | ---------
|
$ (63,220) | $ (53,192)
========= | =========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at cost.
Utility plant and equipment, which is classified as net assets held for sale as
of December 31, 1994 and 1993, includes, in addition to direct labor and
materials, costs such as related employee benefits, taxes, interest and other
costs attributable to plant and equipment construction. The water supply
business provides for depreciation on the straight-line basis at amounts
equivalent to a composite rate of approximately 2% of the average depreciable
plant. All other subsidiaries provide for depreciation principally using the
straight-line method over estimated useful lives.
Property, plant and equipment as of December 31, 1994 and 1993, consists of:
<TABLE>
<CAPTION>
1994 | 1993
------------------------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment $ 18,069 | $ 55,640
Furniture and fixtures 3,334 | 16,146
Land, buildings and leasehold improvements 12,267 | 19,932
--------- | ---------
|
33,670 | 91,718
|
Accumulated depreciation and amortization - | 52,452
--------- | ---------
|
$ 33,670 | $ 39,266
========= | =========
</TABLE>
INVENTORIES - Inventories which consist primarily of construction materials are
stated at the lower of cost or market. Cost is determined by principally using
average costs.
NET ASSETS HELD FOR SALE - Net assets held for sale are stated at the lower of
cost or estimated net realizable value and carried as either current or long-
term assets on the basis of their actual or expected disposition dates.
COST IN EXCESS OF NET ASSETS ACQUIRED - Cost in excess of net assets acquired
(goodwill) is amortized on a straight line basis over 40 years. The amounts
included in the accompanying Consolidated Balance Sheets are net of cumulative
amortization of $8.5 million at December 31, 1993. The pre fresh-start
unamortized goodwill of $57.4 million at December 31, 1994 was written off in
conjunction with the implementation of fresh-start accounting. See Note F.
In 1992, the Company's Board of Directors approved a plan to downsize the
Company's North American mechanical/electrical services business and to sell
non-core businesses and certain mechanical and electrical
F-14
<PAGE>
business units. As a result, in 1992, the company wrote off goodwill of $48.5
million related to such businesses to reflect the net realizable value of
businesses held for sale and the permanent impairment of goodwill.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS -
Reorganization value in excess of amounts allocable to identifiable assets
totaling $5 million is being amortized on a straight-line basis over 15 years.
This amount is included in "Other assets - miscellaneous" in the accompanying
Consolidated Balance Sheet at December 31, 1994.
SUPPLEMENTAL NET INCOME (LOSS) PER SHARE - Historical per share data has not
been presented as it is not meaningful since the Company has been recapitalized
and adopted Fresh Start Reporting as of December 31, 1994. Supplemental net
income (loss) per share data has been calculated based on the assumed issuance
of the New Common Stock (9,424,083 shares) as of January 1, 1994.
STATEMENTS OF CASH FLOWS - For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
INCOME TAXES - Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). The adoption of SFAS 109 changed the Company's method of
accounting for income taxes from the deferred method (APB 11) to an asset and
liability approach which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
At December 31, 1994 and 1993, the valuation allowance recorded against the
deferred tax assets was $114.5 million and $170.1 million, respectively. (See
Note K).
NOTE C DEBT IN DEFAULT
Debt in default at December 31, 1993, consists of (in thousands):
<TABLE>
<CAPTION>
1993
----
<S> <C>
Notes payable to banks under revolving credit
facility at prime plus 3/4% $155,795
Senior notes payable to insurance companies,
9.1% to 10.95% 328,572
--------
Total senior debt 484,367
Subordinated notes payable to insurance
companies, 12% 9,600
7-3/4% Convertible Subordinated Debentures 7,040
--------
$501,007
========
</TABLE>
Prior to the commencement of its Chapter 11 bankruptcy proceeding, the Company
failed to make principal payments on its senior notes and 12% subordinated notes
and was in default under various financial covenants contained in the loan
agreements pursuant to which those notes were issued, including covenants
requiring
F-15
<PAGE>
maintenance of minimum tangible net worth and minimum current ratio.
Its bank revolving credit facility also contained certain financial and other
covenants, including covenants requiring maintenance of minimum tangible net
worth and minimum current ratio, under which the Company was in default.
Additionally, the Company had not made scheduled semi-annual interest payments
since September 1, 1993 with respect to its 7-3/4% Convertible Subordinated
Debentures. As a result, the entire amount of such notes, bank indebtedness and
debentures have been classified in the accompanying Consolidated Balance Sheets
as "Debt in default" at December 31, 1993.
Commencing in April 1993, the Company ceased making payments of principal and
interest on indebtedness under its revolving credit facility and on indebtedness
evidenced by its senior and subordinated notes. Interest continued to accrue in
accordance with the provisions of the loan agreements and notes pursuant to
which this indebtedness was incurred, which in certain circumstances included
default rates at an additional 2% and, in one case, 4% until December 21, 1993,
the date on which an involuntary bankruptcy petition was filed against the
Company. At December 31, 1993, accrued interest applicable to debt in default
was $43.3 million. Such amount is included in "Other accrued expenses and
liabilities" at December 31, 1993 in the accompanying Consolidated Balance
Sheets. The Company also had pledged to the holders of its senior notes and
bank indebtedness the common stock of five subsidiaries held for sale and
certain proceeds from the sale of these subsidiaries. Substantially all of the
assets of three of those subsidiaries were sold in 1994.
The Company's 7-3/4% Convertible Subordinated Debentures were convertible into
its common stock at any time on or prior to September 1, 2012 at $30.11 per
share which was subject to change as provided in the indenture pursuant to which
the debentures were issued. The debentures were redeemable, at the Company's
option, on any date prior to maturity at redemption prices (expressed as
percentages of principal amount) ranging from 102.325% in 1994 to 100% in 1997
and thereafter, plus accrued interest. In 1992, the Company purchased $8.7
million of its 7 3/4% debentures and realized a net gain of $1.8 million from
early retirement of such debt.
See Note A with respect to the exchange of the debt in default for new debt and
equity securities pursuant to the Company's Plan of Reorganization which became
effective on December 15, 1994.
NOTE D PRE-CONSENT DATE BANKRUPTCY CLAIMS SUBJECT TO COMPROMISE
On February 14, 1994, the Company consented to the entry of an order for relief
under Chapter 11 of the U.S. Bankruptcy Code. Under Chapter 11, certain claims
against the Company in existence prior to the date that an involuntary petition
was filed against the Company, December 21, 1993, were stayed while the Company
continued business as a debtor-in-possession. These liabilities, described
below, are included in various liability accounts in the Company's Consolidated
Balance Sheet as of December 31, 1993. These liabilities have been discharged
pursuant to the Plan of Reorganization.
F-16
<PAGE>
<TABLE>
<CAPTION>
OTHER
ACCRUED OTHER LONG-
ACCOUNTS DEBT EXPENSES AND TERM
PAYABLE IN DEFAULT LIABILITIES OBLIGATIONS TOTAL
------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt in default $ - $501,007 $ - $ - $501,007
Accrued interest - - 43,315 - 43,315
Amount due to JWP
Information Services, Inc. - - 24,933 - 24,933
Foreign debt guarantees - - 6,037 - 6,037
Stock price guarantees - - 5,118 - 5,118
Preferred dividends in arrears - - 2,257 - 2,257
Unexpired leases - - - 1,718 1,718
Unfunded directors'
retirement benefits - - - 975 975
Insurance reserves - - 9,600 26,800 36,400
Other impaired claims 400 - 699 - 1,099
---- -------- -------- ------- --------
$400 $501,007 $ 91,959 $29,493 $622,859
==== ======== ======== ======= ========
</TABLE>
The Bankruptcy Court established April 8, 1994 as the bar date for filing of
claims against the Company. Certain claims filed against the Company are
contingent or in dispute and such claims will be resolved by either litigation
or settlement. See Note A.
The Company received approval from the Bankruptcy Court to pay or otherwise
honor certain of its obligations that arose prior to the entry of the order for
relief under Chapter 11, including employee wages and benefits, amounts payable
under the Company's property, casualty, workers' compensation and other
insurance programs and amounts payable under an employee stay bonus/severance
pay plan.
NOTE E DEBTOR-IN-POSSESSION FINANCING
In February 1994, the Company and most of its subsidiaries entered into an
agreement with Belmont to provide for a debtor-in-possession credit facility to
the Company (the "DIP Loan"). The agreement provided to the Company a credit
facility of $35 million at an interest rate of 12% per annum during the Chapter
11 proceeding. The agreement also provided that Belmont was to receive, as
additional interest, a percentage of the securities to be issued under the
Company's Plan of Reorganization. The DIP Loan was secured by a first lien on
substantially all of the assets of the Company and most of its subsidiaries. As
of the Effective Date, the Company had drawn down $30 million under the DIP
Loan.
The Company was in default of certain covenants of the DIP Loan. Pursuant to
written waivers of default dated April 27, 1994, May 6, 1994, August 2, 1994 and
November 4, 1994, the Company had been permitted by Belmont to draw on its line
of credit.
The DIP Loan was repaid on the Effective Date from borrowings under the MES
Credit Agreement.
NOTE F FRESH-START REPORTING
The Company has accounted for its reorganization by using the principles of
Fresh-Start Accounting as required by SOP 90-7. For accounting purposes, the
Company assumed that the Plan of Reorganization was
F-17
<PAGE>
consummated on December 31, 1994. Under the principles of Fresh-Start
Accounting, the Company's total net assets were recorded at their assumed
reorganization value, with the reorganization value allocated to identifiable
assets on the basis of their estimated fair value. Accordingly, the Company's
accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts were reduced by approximately $11.6 million. In addition,
its intangible assets of approximately $60.5 million were written off. The
Company's accumulated shareholders' deficit of approximately $334.5 million,
including its Old common stock of $4.1 million, Old Series A Preferred Stock of
$20.9 million, and Old warrants of participation of $0.6 million and cumulative
Translation Adjustments of $6.2 million were eliminated. The excess of
reorganization value over the value of identifiable assets is reported as
"reorganization value in excess of amounts allocable to identifiable assets"
(the "Excess of Reorganization Value").
The primary valuation methodology employed by the Company, with the assistance
of its financial advisors to determine the reorganization value of the Company
was a net present value approach. The valuation was based on the Company's
forecasts of unleveraged, after-tax cash flows calculated for each year over the
four-year period from 1994 to 1997, capitalizing projected earnings before
interest, taxes, depreciation and amortization at multiples ranging from 3 to 10
selected to value earnings and cash flows beyond 1997, and discounting the
resulting amounts to present value at rates ranging from 10% to 30% selected to
approximate the Company's projected weighted average cost of capital. The above
calculations resulted in an estimated reorganization value of approximately
$81.1 million, of which the Excess Reorganization Value was $5.0 million. The
Excess Reorganization Value will be amortized over 15 years.
As a result of the implementation of Fresh-Start Accounting, the financial
statements of the Company after consummation of the Plan will not be comparable
to the Company's financial statements of prior periods. A black line is shown
to separate the accompanying December 31, 1994 Consolidated Balance Sheet from
the prior year since it is not prepared on a comparable basis.
The effect of the Plan of Reorganization, including the discharge of debt, and
the implementation of Fresh-Start Accounting on the Company's Consolidated
Balance Sheet as of December 31, 1994 was as follows (in thousands):
F-18
<PAGE>
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION
----------------------------------------------------------------------
PRE-FRESH-START DEBT FRESH-START
BALANCE SHEET DISCHARGE BALANCE SHEET
DECEMBER 31, & EXCHANGE FRESH-START DECEMBER 31,
1994 OF STOCK (a) ADJUSTMENTS (f) 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 52,505 $ - $ - $ 52,505
Accounts receivable, net 441,958 - (3,000) 438,958
Costs and estimated earnings in
excess
of billings on uncompleted
contracts 60,912 - (8,565) 52,347
Inventories 6,910 - - 6,910
Prepaid expenses and other 8,115 - - 8,115
Net assets held for sale 83,113 - (27,712)(g) 55,401
--------- ---------- -------- ---------
TOTAL CURRENT ASSETS 653,513 - (39,277) 614,236
--------- ---------- -------- ---------
INVESTMENTS, NOTES AND OTHER
LONG-TERM RECEIVABLES 6,122 - - 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 33,670 - - 33,670
OTHER ASSETS:
Excess of cost of acquired business over net assets 57,435 - (57,435) -
Reorganization value in excess of amounts
allocable to identifiable assets - - 5,000 5,000
Miscellaneous 51,595 - (3,125) 48,470
--------- ---------- -------- -------
109,030 - (55,560) 53,470
--------- ---------- -------- ---------
TOTAL ASSETS $ 802,335 $ - $(94,837) $ 707,498
========= ========== ======== =========
CURRENT LIABILITIES:
Notes payable $ 4,803 - - $ 4,803
Borrowings under working capital credit line 40,000 - - 40,000
Current maturities of long-term
debt and capital lease obligations 2,627 (538)(b) - 2,089
Series A Senior Notes - 63,785 (b) (8,384)(g) 55,401
Accounts payable 219,564 - - 219,564
Billings in excess of costs and
estimated earnings on uncompleted contracts 115,567 - - 115,567
Accrued expenses and other liabilities 84,574 - - 84,574
--------- ---------- -------- ---------
TOTAL CURRENT LIABILITIES 467,135 63,247 (8,384) 521,998
--------- ---------- -------- ---------
LONG-TERM DEBT 2,219 68,292(b) (10,729) 59,782
--------- ---------- -------- ---------
OTHER LONG-TERM OBLIGATIONS 44,588 - - 44,588
--------- ---------- ------- ---------
PRE-CONSENT DATE LIABILITIES,
SUBJECT TO COMPROMISE 622,859 (622,859)(b)(c) - -
--------- ---------- ------- ---------
SHAREHOLDERS' (DEFICIT) EQUITY:
Old Series A Preferred Stock 20,905 (20,905)(d) - -
Old Common Stock 4,073 (4,073)(d) - -
New Common Stock - 94 (d) - 94
Old Warrants of Participation 576 (576)(d) - -
New Warrants - - 2,179 2,179
Capital Surplus 204,591 25,460 (151,194) 78,857
Cumulative translation adjustment (6,241) - 6,241 -
(Deficit) (558,370) 491,320 (e) 67,050 -
--------- ---------- -------- --------
TOTAL SHAREHOLDERS' (DEFICIT)
EQUITY (334,466) 491,320 (75,724) 81,130
--------- ---------- -------- --------
TOTAL LIABILITIES AND SHARE-
HOLDERS' (DEFICIT) EQUITY $ 802,335 $ - $(94,837) $707,498
========= ========== ======= ========
</TABLE>
F-19
<PAGE>
(a) Reflects adjustments relating to discharge of debt and exchange of newly
issued debt and equity securities pursuant to the Plan of Reorganization.
(b) Reflects the discharge of old debt and issuance of new debt under the Plan
as follows:
<TABLE>
<CAPTION>
HISTORICAL RESTRUCTURE FRESH
CARRYING DISCHARGE/ START
AMOUNT EXCHANGE BALANCE*
------ -------- -------
<S> <C> <C> <C>
Senior Notes Payable under Revolving
Credit Facility $155,795 $(155,795) $ -
Senior Notes Payable under Various
Indentures 328,572 (328,572) -
Subordinated Note Payable 9,600 (9,600) -
Convertible Subordinated Debentures 7,040 (7,040) -
-------- --------- -------
Total Debt in Default $501,007 $(501,007) -
======== ========= =======
Other Senior Notes (included in current
maturities of long-term debt) $ 538 $ (538) $ -
======== ========= =======
New 7% Series A Senior Secured Notes $ - $ 63,785(1) $63,785
======== ========= =======
New 11% Series C Notes (included in long-term
debt) $ - $ 62,827 $62,827
======== ========= =======
New 8% Supplemental SellCo Note (included
in long-term debt) $ - $ 5,464 $ 5,464
======== ========= =======
</TABLE>
______________________
* The pro forma adjustments to the recorded debt balances reflect the
differences between the historical carrying amounts of the old debt
securities and the face amount of the new debt securities issued
pursuant to the Plan of Reorganization before fresh-start
adjustments.
(1) The amount of Series A Notes to be issued are based upon an assumed
total of $100.0 million of prepetition general unsecured claims after
settlement of disputed and unliquidated prepetition general unsecured
claims.
F-20
<PAGE>
(c) Reflects reduction of recorded amounts of accrued interest, insurance
reserves, other impaired liabilities and unexpired leases rejected by the
Company during its bankruptcy proceedings classified as pre-consent
liabilities subject to compromise:
<TABLE>
<CAPTION>
ACCOUNTS ACCRUED LONG-TERM
PAYABLE EXPENSES LIABILITIES TOTAL
------- -------- ----------- -----
<S> <C> <C> <C> <C>
Accrued interest $ - $43,315 $ - $ 43,315
Insurance reserves - 9,600 26,800 36,400
Amount due to JWP Information
Services, Inc. - 24,933 - 24,933
Foreign debt guarantees - 6,037 - 6,037
Stock price guarantees - 5,118 - 5,118
Preferred dividends in arrears - 2,257 - 2,257
Unexpired leases - - 1,718 1,718
Director's retirement benefits - - 975 975
Other impaired claims 400 699 - 1,099
----- ------- ------- -------
Total $ 400 $91,959 $29,493 $121,852
===== ======= ======= ========
</TABLE>
Adjustment amounts also reflect the recording of the estimated discounted
value of the $48.1 million principal amount of SellCo Notes. The SellCo
Notes are subject to cancellation at any time after five years from the
Effective Date if the value of the consolidated assets of SellCo and its
subsidiaries is determined by independent appraisal to be less than
$250,000 (excluding a note in the principal amount of $5,464,000 made by
the Company to SellCo); accordingly, the SellCo Notes are not classified as
a liability but rather, are included net in the caption "Net assets held
for sale" in the accompanying Consolidated Balance Sheet at December 31,
1994.
(d) Reflects the elimination of the recorded book value of old common stock,
old preferred stock and warrants of participation upon consummation of the
Plan of Reorganization and the issuance of 1,518,000 New Warrants and
9,424,083 shares of New Common Stock, $.01 par value.
(e) The deficit was reduced by the net reduction in debt due to the discharge
of old debt and issuance of new debt instruments, as well as the reduction
of recorded amounts of impaired liabilities as described in Note (c).
(f) To record the adjustments to state assets and liabilities at fair value and
to eliminate the deficit in accumulated earnings against additional paid-in
capital.
(g) Amount includes approximately $4.1 million of principal reduction of Series
A Notes on the Effective Date.
F-21
<PAGE>
NOTE G PRO-FORMA STATEMENT OF OPERATIONS
The following unaudited Consolidated Pro Forma Statement of Operations reflects
the financial results of the Company as if the reorganization had been effective
January 1, 1994 (in thousands):
<TABLE>
<CAPTION>
OPERATIONS
SOLD OR OTHER
HELD FOR PRO FORMA PRO FORMA
HISTORICAL SALE (a) ADJUSTMENTS REORGANIZED
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $1,763,961 $(168,939) $ - $1,595,022
---------- -------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,607,589 (152,023) - 1,455,566
Selling, general and
administrative 178,575 (30,567) (3,646)(b) 144,362
---------- --------- ---------- ----------
1,786,164 (182,590) (3,646) 1,599,928
---------- --------- ---------- ----------
OPERATING LOSS: (22,203) 13,651 3,646 (4,906)
Interest expense, net (2,476) 120 (13,211)(c) (15,567)
Net gain on businesses sold
or held for sale 1,183 - (1,183)(d) -
Loss on investment (4,452) - - (4,452)
REORGANIZATION ITEMS:
Professional fees (12,535) - 12,535(e) -
Fresh-start adjustments (78,783) - 78,783(e) -
---------- --------- ---------- ----------
(119,266) 13,771 80,570 (24,925)
INCOME TAX BENEFIT (332) - - (332)
---------- --------- ---------- ----------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY
ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE (118,934) 13,771 80,570 (24,593)
INCOME FROM DISCONTINUED
OPERATIONS 10,216 (10,216) - -
EXTRAORDINARY ITEM -
Gain on debt discharge 413,249 - (413,249) -
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (2,100) - - (2,100)
---------- --------- --------- ----------
NET INCOME (LOSS) $ 302,431 $ 3,555 $(332,679) $ (26,693)
========== ========= ========= ==========
</TABLE>
(a) Reflects adjustments to the Company's historical consolidated
statement of operations to eliminate revenues, cost, expenses and
interest.
F-22
<PAGE>
<TABLE>
<S> <C>
(b) Reflects the following adjustments to selling, general and administrative
expenses:
To eliminate amortization of goodwill and other intangibles $ 3,646
=======
(c) Reflects the following adjustments to interest expense:
To record interest expense on 11% Series C Notes $ 7,745
To record interest expense on 8% SellCo Supplemental Note 596
To record interest expense on new working capital credit
facilities assuming an average of $30 million
outstanding at 15% 4,500
To reverse interest on Debtor-in-Possession financing
credit facility (2,030)
To record debt issuance costs at closing 2,400
-------
$13,211
=======
(d) To eliminate net gain on sale of businesses $ 1,183
=======
(e) To eliminate various legal and other professional fees associated with
the Chapter 11 proceedings, and to record fair value adjustments in
accordance with SOP 90-7.
</TABLE>
NOTE H REORGANIZATION ITEMS
For the year ended December 31, 1994, the Company recorded $12.5 million of
reorganization charges in the accompanying Consolidated Statement of Operations
for various legal and other professional fees associated with its Chapter 11
proceeding. Such reorganization charges are expensed as incurred as prescribed
by SOP 90-7. In addition, reorganization items include fresh start adjustments
(see Note F) which reflect the net charge to state assets and liabilities at
fair value.
NOTE I EXTRAORDINARY ITEM - DISCHARGE OF DEBT
The Plan of Reorganization resulted in the discharge of pre-consent date
liabilities totaling approximately $623 million. The value of securities
distributed was $413.2 million less allowed claims, and accordingly, the
resulting gain was recorded as an extraordinary item.
NOTE J DEBT
MES CREDIT AGREEMENT - On December 14, 1994, the Company and certain of its
subsidiaries entered into a credit agreement with Belmont and other lenders (the
"Lenders") providing the Company and MES Holdings Corporation ("MES"), a wholly-
owned subsidiary of the Company, with revolving credit loans (the "MES Loans")
of up to an aggregate amount of $35 million. The MES Loans are guaranteed by
certain direct or indirect subsidiaries of MES (the "MES subsidiaries") and are
secured by, among other things, substantially all of the assets of the Company,
MES and the U.S. MES subsidiaries, including the proceeds of the sale of all of
the assets of the Company. MES and the U.S. MES subsidiaries, including the
proceeds of the sale of stock or assets of the Company's two water supply
companies (the "Water Companies") to the extent of the first
F-23
<PAGE>
$15 million of such proceeds, subject to the rights to such proceeds of the
Lenders under the Dyn Credit Agreement. The MES Loans bear interest on the
principal amount thereof at the rate of 15% per annum and mature on June 14,
1996.
DYN CREDIT AGREEMENT - On December 14, 1994, the Company, Dyn Specialty
Contracting, Inc. ("Dyn"), a wholly-owned subsidiary of the Company and Dyn
subsidiaries entered into a credit agreement with the Lenders providing
revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10
million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured
by, substantially all of the assets of Dyn and the Dyn subsidiaries, including
the proceeds of the sale of stock or assets of the Water Companies to the extent
of the first $15 million of such proceeds, subject to the rights to such
proceeds of the Lenders under the MES Credit Agreement. The Dyn Loans bear
interest on the principal amount thereof at the rate of 15% per annum, and
mature on June 14, 1996.
Borrowings under the MES and Dyn Credit Agreements are classified as current
liabilities under the caption "Borrowings under working capital credit line" in
the accompanying Consolidated Balance Sheets.
SERIES A NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
the Company issued or reserved for issuance approximately $62.2 million
principal amount of Series A Notes, and reserved for issuance up to a maximum of
$8.8 million additional principal amount of Series A Notes upon resolution of
disputed and unliquidated pre-petition general unsecured claims. The Series A
Notes are guaranteed by MES and SellCo. The terms of the Series A Notes require
that the net proceeds realized from the sale of the stock or assets of the
Company's subsidiaries be applied to the prepayment of the Series A Notes
(subject to the rights of the Lenders under the MES and Dyn Credit Agreements to
receive proceeds from the sale of the stock or assets of the Company's
mechanical and electrical subsidiaries and the first $15.0 million of proceeds
of the sale of stock or assets of the Water Companies). The recorded amount
includes the estimated amount of Series A Notes to be issued upon resolution of
the disputed and unliquidated prepetition general unsecured claims. The Company
recorded the Series A Notes based upon an assumed total of $100 million of pre-
petition general unsecured claims after settlement of disputed and unliquidated
pre-petition general and unsecured claims. Approximately $4.1 million of the
issued Series A Notes were redeemed prior to December 31, 1994. The Series A
Notes have been recorded at a discount to the face amount to yield an estimated
effective interest rate of 12%. The Series A Notes have been classified as a
current liability based on the expected disposition of assets held for sale.
Interest on the Series A Notes is payable semiannually by issuance of additional
Series A Notes until maturity.
SERIES B NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
the Company issued approximately $11.9 million principal amount of Series B
Notes. The entire $11.9 million principal amount was immediately redeemed, on
that date at the face amount in accordance with the terms of the Series B Notes
from the proceeds realized from the sale and liquidation of certain
subsidiaries.
SERIES C NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994
the Company issued approximately $62.8 million principal amount of Series C
Notes. Interest on the Series C Notes is payable semiannually by the issuance of
additional Series C Notes eighteen months from the Effective Date and thereafter
is payable quarterly in cash. The Series C Notes are unsecured senior
indebtedness of the Company, but subordinate to (i) the Series A Notes and (ii)
up to $100 million of working capital indebtedness of the Company or MES, and
are guaranteed by MES subject to payment in full of the Series A Notes. The
Series C Notes have been recorded at a discount to their face amount to yield an
estimated effective interest rate of 14%.
F-24
<PAGE>
SUPPLEMENTAL SELLCO NOTE - Pursuant to the Plan of Reorganization, EMCOR has
issued to SellCo its 8% promissory note in the principal amount of approximately
$5,464,000 (the "Supplemental SellCo Note"). The note matures on the earlier of
(i) December 15, 2004 or, (ii) one day prior to the date on which the SellCo
Notes are deemed canceled. If at any time after the fifth anniversary of the
Effective Date and prior to the maturity date of the SellCo Notes the value of
the consolidated assets of SellCo and its subsidiaries (excluding the
Supplemental SellCo Note) is determined by independent appraisal to be less than
$250,000, the balance of the SellCo Notes (not therefore paid from net sales
proceeds from the sale of the stock or assets of SellCo subsidiaries and the
proceeds of the Supplemental SellCo Note which will have become due and payable)
will be deemed canceled. Interest on the Supplemental SellCo Note is payable
upon maturity.
The Series C Notes and the Supplemental SellCo Note are included in the caption
"Long-Term Debt" in the accompanying Consolidated Balance Sheet at December 31,
1994.
SELLCO NOTES - Pursuant to the Plan of Reorganization, on December 15, 1994,
SellCo issued approximately $48.1 million principal amount of SellCo Notes.
Interest is payable semiannually in additional SellCo Notes. Subject to the
prior payment in full of the Series A Notes and establishment of a cash reserve
for the payment of capital gains taxes arising from the sale of subsidiaries of
SellCo and the rights of the Lender with respect to proceeds of the sale of the
Water Companies, the SellCo notes are mandatorily prepayable to the extent of
net sales proceeds from the sale of stock or assets of SellCo subsidiaries.
Since the SellCo Notes will only be satisfied to the extent that assets of
SellCo and its subsidiaries generate sufficient cash in excess of what is
required to redeem the Series A Notes and prepay a portion of the MES and Dyn
Credit Agreements, the SellCo Notes have been netted in the caption "Net assets
held for sale" in the accompanying consolidated balance sheet at December 31,
1994. The Company has no liability for the SellCo Notes except to the extent of
the 8% Supplemental SellCo Note discussed above.
OTHER LONG-TERM DEBT - As of December 31, 1994 and 1993, respectively, long-term
debt, excluding current maturities, totaling $2.2 million and $2.5 million was
owed by certain of the Company's subsidiaries. The aggregate amount of long-term
debt maturing during the next five years is $0.3 million in 1995 and 1996, $0.2
million in 1997 and 1998 and $1.2 million thereafter.
NOTE K INCOME TAXES
Effective January 1, 1992, the Company adopted the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the liability method specified by SFAS 109, a deferred tax asset or liability is
determined based on the difference between the financial statement and tax basis
of assets and liabilities as measured by the enacted tax rates which will be in
effect when these differences reverse. The cumulative effect of adopting SFAS
109 was to record an income tax benefit of $4.3 million as of January 1, 1992.
Such amount has been reflected in the Consolidated Statements of Operations
under the caption "Cumulative Effect of Change in Method of Accounting for
Income Taxes."
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At December 31, 1994, the Company had a net operating loss carry-
forward ("NOL") for U.S. income tax purposes expiring in years through 2008
which approximates $500 million. Under Section 382 (1)(6) of the Internal
Revenue Code (the "Code") the use of the NOL would be significantly limited.
However, the Company intends, at the present time, to elect to use Code Section
382 (1)(5) which would allow the Company to use approximately $300 million of
the NOL. However, a subsequent ownership change within two years from the
Effective Date would reduce to zero the future NOL benefits under Code Section
382(1)(5). An irrevocable election must be made as to which method the Company
will use by September 15, 1995.
F-25
<PAGE>
SFAS 109 requires a valuation allowance against deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. The Company provided a valuation
allowance for the full amount of its NOLs.
At December 31, 1994 and 1993, the valuation allowances recorded against the
deferred tax assets were $114.5 million and $170.1 million, respectively.
The (benefit) provision for income taxes relating to continuing operations for
the years ended December 31, 1994, 1993 and 1992, consist of:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal $ - $(4,138) $ -
State and local 1,000 1,000 1,248
Foreign - (1,700) 1,106
------- ------- -------
1,000 (4,838) 2,354
------- ------- -------
Deferred
Federal - 4,138 4,487
State and Local (1,332) - (56)
Foreign - - 859
------- ------- -------
(1,332) 4,138 5,290
------- ------- -------
$ (332) $ (700) $7,644
======= ======= =======
</TABLE>
The (benefit) provision for income taxes relating to discontinued operations for
the years ended December 31, 1994, 1993 and 1992, consist of:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal $ - $ - $ (237)
State and Local - - 7
-------- -------- -------
- - (230)
-------- -------- -------
Deferred
Federal - - 983
State and Local - - 864
-------- -------- -------
- - 1,847
-------- -------- -------
$ - $ - $ 1,617
======== ======== =======
</TABLE>
F-26
<PAGE>
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1994, 1993
and 1992, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at the statutory rate $ (9,782) $ (40,142) $(120,996)
State and local income taxes, net of federal tax 650 650 787
Amortization and write-off of intangibles - - 29,791
Valuation allowance against deferred tax asset 8,800 38,792 96,849
Other - - 1,213
--------- --------- ---------
$ (332) $ (700) $ 7,644
========= ========= =========
</TABLE>
Factors accounting for the variation from U.S. statutory income tax rates
relating to discontinued operations for the years ended December 31,
1994, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at the statutory rate $ 3,576 $ (3,180) $ (85,548)
State and local income taxes, net of federal tax - - 575
Amortization and write-off of intangibles - - 28,289
Valuation allowance against deferred tax asset (3,576) 3,180 58,409
Other - - (108)
--------- --------- ---------
$ - $ - $ 1,617
========= ========= =========
</TABLE>
F-27
<PAGE>
The components of the net deferred income tax liability for the years
ended December 31, 1994 and 1993, are as follows (In 1994 net deferred
income tax liability related to net assets held for sale have been
netted against such caption):
<TABLE>
<CAPTION>
1994 | 1993
-------------------------------
(IN THOUSANDS)
<S> <C> | <C>
Deferred tax assets: |
Net operating loss carry-forward $ 95,231 | $ 177,654
Excess of amounts expensed for financial statement purposes |
over amounts deducted for income tax purposes 46,522 | 26,183
Other 2,899 | 2,899
--------- | ---------
|
Total deferred tax asset 144,652 | 206,736
--------- | ---------
|
Deferred tax liabilities: |
Costs capitalized for financial statement purposes |
and deducted for income tax purposes 28,790 | 39,593
Foreign deferred tax liability 1,403 | 2,695
--------- | ---------
|
Total deferred tax liability 30,193 | 42,288
--------- | ---------
|
Net deferred tax asset before valuation allowance 114,459 | 164,448
Valuation allowance for net deferred tax asset (114,459) | (170,087)
--------- | ---------
Net deferred income tax liability $ - | $ (5,639)
========= | =========
</TABLE>
Loss before income taxes from continuing operations for the years ended
December 31, 1994, 1993 and 1992, consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
United States $(10,897) $(106,672) $(342,304)
Foreign (17,051) (8,019) (13,567)
-------- --------- ---------
$(27,948) $(114,691) $(355,871)
======== ========= =========
</TABLE>
Income (loss) before income taxes from discontinued operations for the years
ended December 31, 1994, 1993 and 1992, consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
United States $ 10,216 $ (6,270) $(228,754)
Foreign - (2,817) (22,859)
--------- --------- ---------
$ 10,216 $ (9,087) $(251,613)
========= ========= =========
</TABLE>
The above amounts applicable to discontinued operations in 1993 and 1992 include
a loss from disposal of businesses of $20.4 million and $49.5 million,
respectively.
F-28
<PAGE>
NOTE L CAPITAL STOCK AND WARRANTS
AUTHORIZED CAPITAL STOCK - As of December 31, 1994, the Company's Amended and
Restated Certificate of Incorporation provides that the total number of all
classes of stock which the Company shall have authority to issue is Thirteen
Million Seven Hundred Thousand (13,700,000) shares of Common Stock, par value
$.01 per share (the "New Common Stock"). As of March 29, 1995, 5,485,719 shares
of New Common Stock had been issued and were outstanding and 3,938,364 shares
were held by the Company pending distribution pursuant to the Plan of
Reorganization.
1994 MANAGEMENT STOCK OPTION PLAN - In connection with the Plan of
Reorganization negotiations the Company adopted a Management Stock Option Plan
(the "1994 Plan"). The 1994 Plan is conditioned on approval by the stockholders
of the Company following its adoption.
The aggregate number of New Common Stock that may be issued pursuant to options
under the 1994 Plan may not exceed 1,000,000. The maximum number of shares which
may be the subject of options granted to any individual in any calendar year
shall not exceed 500,000 shares.
Within one year after the Effective Date, the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee") shall determine
the recipients of options to purchase a minimum of 500,000 shares of New Common
Stock of the Company pursuant to the 1994 Plan and shall issue such options to
such recipients in the respective amounts as determined by the Compensation
Committee; provided, however, that in no event shall such options be issued
prior to the expiration of three months plus 20 days after the Effective Date.
The employment agreement between the Company and the Chairman of the Board and
President, Frank T. MacInnis requires that Mr. MacInnis shall receive options to
purchase 200,000 shares of New Common Stock three months and twenty days
following the Effective Date.
Options may be granted by the Compensation Committee to eligible employees as
"incentive stock options" or as non-qualified stock options.
The exercise price of an incentive stock option and a non-qualified stock option
must be at least equal to the fair market value of the New Common Stock on the
date of grant; provided, however, that the purchase for the initial grant of
options with respect to 500,000 shares shall be equal to the average market
price of New Common Stock over the 20 day trading period immediately preceding
the date of issuance of the option; and provided, further, that if the average
market price of New Common Stock for the applicable period cannot be determined,
the exercise price shall be determined by an investment advisor selected by the
Compensation Committee. Notwithstanding the preceding, the exercise price of any
such option which is an incentive stock option shall not be less than the fair
market value of the New Common Stock on the date of grant of the option.
Options may not be exercised more than ten years after the date of grant.
Options shall be exercisable at such rate and times as may be fixed by the
Compensation Committee on the date of grant; however, the rate at which the
option first becomes exercisable may not be more rapid than 33-1/3% on and after
each of the first, second and third anniversaries.
WARRANTS - 1,450,000 shares were reserved for issuance upon exercise of the New
Warrants (as defined below) issued pursuant to the Plan of Reorganization as
described below.
Pursuant to the Plan of Reorganization, the Company issued to the holders of
$7,040,000 principal amount of its prepetition 7-3/4% Convertible Subordinated
Debentures due 2012 and $9,600,000 principal amount of its prepetition 12%
Subordinated Notes due 1996, their pro rata share of each of two series of five-
year warrants to purchase shares of New Common Stock, namely, 600,000 Series X
Warrants and 600,000 Series Y Warrants (which together with the Series Z
Warrants described below are referred to herein as the "New Warrants"), with
F-29
<PAGE>
an exercise price of $12.55 per share and $17.55 per share, respectively. In
addition, the Company issued or will issue to prepetition holders of other
contingent and statutory subordinate claims and to holders of EMCOR's
prepetition common stock, preferred stock and warrants of participation, as well
as to the plaintiffs in a shareholder class action lawsuit, their pro rata share
of 250,000 Series Z Warrants to purchase shares of New Common Stock, which
Series Z Warrants have an exercise price of $50 per share and must be exercised
within two years of their issuance.
Approximately 28,000 Series X Warrants, 28,000 Series Y Warrants and 12,000
Series Z Warrants will also be issued to Belmont as a portion of additional
interest under the DIP Loan.
OLD PREFERRED STOCK - In August 1991, the Company issued 425,000 shares of
preferred stock in connection with the acquisition of Businessland, Inc. The
preferred stock was convertible into common stock of the Company, at any time,
at the option of the holder at a conversion price of $20.00 per share, subject
to customary anti-dilution provisions and exchangeable for 8.5% Convertible
Subordinated Notes due 2006 of the Company, in whole, but not in part, at the
option of the Company. Commencing July 31, 1993, the Company had the option to
redeem the shares of preferred stock at $50.00 per share. Each share of
preferred stock entitled the holder to receive cumulative cash dividends at the
annual rate of $4.25 per annum per share. The Company has not paid dividends on
its preferred stock since September 1992. The Company ceased accruing dividends
on its preferred stock on December 21, 1993, the date on which an involuntary
bankruptcy petition was filed against the Company. Cumulative unpaid dividends
at December 31, 1993 aggregated $2.3 million. The preferred stock and the
obligations with respect to the cumulative unpaid dividends were canceled
pursuant to the Company's Plan of Reorganization.
OLD WARRANTS - In 1969, the Company distributed 1,152,649 warrants of
participation to holders of its common stock. The warrants of participation,
which would have expired on December 31, 1994, entitled their holders to receive
shares of common stock of the Company in the event that JWS disposed of all or
any significant portion of its water distribution system or the Company disposed
of any shares of JWS. The number of shares of common stock to be issued, if any,
would have been determined on the basis of a specified formula and would have
been distributed to warrant holders on a pro rata basis. The warrants of
participation were canceled pursuant to the Company's Plan of Reorganization.
As of December 31, 1993 and 1992, the company had outstanding stock options of
approximately 2.3 million and 3.2 million shares, respectively, at option
exercise prices ranging from $3.00 to $21.05 per share. The stock options were
issued in connection with the Company's 1992 and 1991 Stock Option Plans, the
1986 Incentive Stock Option and Appreciation Plan and in connection with the
acquisition of NEECO, Inc. in 1990. During 1993, options to purchase a total of
50,000 shares were granted at an exercise price of $3.625 per share. No stock
options were exercised in 1994 or in 1993. All of these options were canceled
pursuant to the Company's Plan of Reorganization.
As described in Note A, under the Plan of Reorganization, the holders of the
Company's old preferred and common stock and warrants of participation received
warrants to purchase the common stock of the reorganized Company in exchange for
their respective shares and warrants of participation.
NOTE M RETIREMENT PLANS
A foreign subsidiary has a defined benefit pension plan covering substantially
all eligible employees. The benefits under the plan are based on wages and years
of service with the subsidiary. The Company's policy is to fund the minimum
amount required by law.
F-30
<PAGE>
Net pension expenses for the foreign defined benefit plan for the years ended
December 31, 1994, 1993 and 1992, consist of the following components:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs-benefits earned $ 1,725 $ 1,479 $ 1,301
Interest on projected benefit obligations 2,772 2,478 2,481
Actual return on plan assets 2,554 (7,955) (5,473)
Net amortization and deferral (6,296) 5,129 2,452
-------- -------- --------
Net pension expense $ 755 $ 1,131 $ 761
======== ======== ========
</TABLE>
The benefit obligations and funded status of the plan at December 31, 1994 and
1993, are as follows:
<TABLE>
<CAPTION>
1993 | 1992
---------------------------
(IN THOUSANDS)
|
<S> <C> | <C>
Accumulated benefit obligations: |
Vested $29,824 | $25,293
Non-Vested - | -
Impact of future salary increases 4,769 | 4,049
-------- | ---------
Projected benefit obligations 34,593 | 29,342
Plan assets at market value 33,997 | 34,566
-------- | ---------
(Deficiency) excess of plan assets over projected benefit obligations (596) | 5,224
Unrecognized prior service cost 867 | 882
Unrecognized net loss (gain) from past experience |
different from that assumed and effect of |
changes in assumptions 795 | (5,453)
Unrecognized net (asset) from initial application |
of SFAS No. 87 (759) | (795)
-------- | ---------
Prepaid (accrued) pension $ 307 | $ (142)
======== | =========
</TABLE>
The assumptions used as of December 31, 1994, 1993 and 1992, in determining the
pension cost and liability shown above were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C>
Discount rate 9% 9% 10%
Rate of salary progressions 7 7 7
Rate of return on assets 10 10 10
</TABLE>
The unrecognized net asset of the foreign plan is being amortized over 15 years.
The plan assets are invested 80% in equity securities and 20% in fixed income
securities.
The Company contributes to various union pension funds based upon wages paid to
union employees of the mechanical and electrical business units. Such
contributions approximated $41.4 million, $45.5 million and $41.6 million for
the years ended December 31, 1994, 1993 and 1992, respectively.
The Company has defined contribution retirement plans that cover its U.S. non-
union eligible employees. Contributions to these plans are based on a percentage
of the employee's base compensation. The expense
F-31
<PAGE>
recognized for the years ended December 31, 1994, 1993 and 1992, relating to
continuing operations for the defined contribution plans was $6.9 million, $3.5
million and $4.7 million, respectively.
NOTE N LEASE COMMITMENTS
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expense.
In 1994, the Company was unable to renegotiate the terms of the lease for its
headquarters located in Rye Brook, New York. As a result, the Company, during
its Chapter 11 proceedings, rejected that lease and entered into a new lease for
its headquarters in Norwalk, Connecticut. The future minimum payments under
operating leases and related subleases, below, include the new lease in Norwalk,
Connecticut. Future minimum payments, by year and in the aggregate, under
capital leases, non-cancelable operating leases and related subleases with
initial or remaining terms of one or more years relating to continuing
operations at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASES
LEASES LEASES
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Year 1 $ 984 $18,186 $ 1,677
Year 2 658 15,260 1,944
Year 3 147 10,767 2,045
Year 4 120 8,092 1,228
Year 5 120 6,166 1,064
Thereafter 537 31,910 9,058
------- ------- -------
Total minimum lease payments 2,566 $90,381 $17,016
======= =======
Amounts representing interest 495
-------
Present value of net minimum lease payments
(includes current portion of $581) $ 2,071
=======
</TABLE>
Future minimum payments under non-cancelable operating leases relating to
discontinued operations as of December 31, 1994 are as follows (in thousands):
$426, $411, $396, $198 and $0 in 1995, 1996, 1997, 1998 and 1999, respectively.
"Other long-term obligations" for the years ended December 31, 1994 and 1993,
include capital lease obligations of $1.6 million and $2.2 million,
respectively.
Rent expense relating to continuing operations for the years ended December 31,
1994, 1993 and 1992, was $20.2 million, $21.5 million and $26.6 million,
respectively. Rent expense for the year ended December 31, 1994 includes
sublease rentals of $1.4 million and $0.8 million for the years ended December
31, 1993 and 1992, respectively. Rent expenses relating to discontinued
operations for the years ended December 31, 1994, 1993 and 1992, was $2.8
million, $7.5 million and $20.7 million, respectively.
NOTE O BUSINESS COMBINATIONS
There were no significant business combinations during 1993 or 1994.
F-32
<PAGE>
During 1992, the Company acquired two mechanical contracting businesses for
which the Company paid approximately $15.4 million in cash, notes and common
stock. Net tangible assets acquired were approximately $7.0 million. The
acquisitions were accounted for by the purchase method of accounting, and,
accordingly, the consolidated results of operations include the results of the
acquired businesses from acquisition dates. Pro-forma amounts for the year ended
December 31, 1992 are not materially different from the actual amounts.
NOTE P DISCONTINUED OPERATIONS
Discontinued operations include the Company's information services businesses
and water supply business (the "Water Companies").
In March 1993, the Company's Board of Directors approved the disposition of the
Company's U.S. information services business. The Board of Directors had
previously decided to sell the Company's overseas information services
businesses. Accordingly, operating results of the information services
businesses have been classified as discontinued operations. In August 1993, the
Company sold substantially all of the assets of the principal subsidiary ("IS
Subsidiary") carrying on its U.S. information services business for which no
material gain or loss was realized. Under the terms of the sale agreement, the
purchaser assumed the debt and other liabilities relating to the ongoing
operations of the business. The IS Subsidiary received warrants to buy up to 10%
of the purchasers' common stock for a nominal amount. The Company assigned no
value to these warrants.
In October 1993, the IS Subsidiary filed a voluntary petition under Chapter 7 of
the U.S. Bankruptcy Code. In connection with the bankruptcy filing, the Company
recorded a loss of $8.1 million in the third quarter of 1993. Such amount is
included in "Loss from disposal of businesses, net of income taxes" in the
accompanying Consolidated Statements of Operations. At December 31, 1993, the
Company owed its IS Subsidiary $24.9 million. Such amount is included in the
accompanying Consolidated Balance Sheets in "Other accrued expenses and
liabilities" at December 31, 1993.
Additionally, in 1993 the Company recorded a loss of $1.5 million to further
write-down the net assets of the IS Subsidiary to its estimated net realizable
value based upon current market conditions and sold substantially all of the
assets of its foreign information services businesses. The sale of its foreign
information services businesses resulted in a loss of $3.3 million. Such
amounts are included under the caption "Loss from disposal of businesses, net of
income taxes" in the accompanying Consolidated Statements of Operations. As of
December 31, 1993, all of the information services businesses had been sold.
In 1993, the Company's French and Belgian information services subsidiaries
filed petitions in their respective countries seeking relief from their
creditors.
Revenues of the information services businesses in 1993 and 1992 were $876.7
million and $1,692.4 million, respectively. Operating income of these
businesses was $10.2 million in 1993, compared to an operating loss of $187.9
million in 1992. In 1992, the information services businesses loss includes
$41.3 million attributable to the write-off of goodwill and other intangibles
related to the U.S. information services business and $26.0 million primarily
relating to severance payments and facilities consolidation.
Additionally, in 1992 the Company provided for a loss of $49.5 million in
connection with its plan to dispose of the overseas information services
businesses and other units of its U.S. information services business. This loss
represented the estimated loss to be realized upon the disposition of such
businesses. Such loss includes $32.1 million related to the write-off of
goodwill and other intangible assets and $17.4 million for estimated losses to
be incurred up to the expected disposal dates and the write-down of other assets
to estimated net realizable value.
F-33
<PAGE>
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993 the Company's Board of Directors decided not to
proceed with the sale due to uncertainties created by the then pending rate
related proceedings and litigation. In December 1993, JWS entered into an
agreement with respect to the rate related proceedings and litigation. This
agreement was approved by the New York State Public Service Commission on
February 2, 1994. Accordingly, in the first quarter of 1994 the Company
reinstated its plan of sale. A $7.4 million loss was recorded in 1993 to write-
down the net assets of the water supply business to estimated net realizable
value. The financial statements for all periods presented reflect the water
supply business as discontinued operations.
See Note X with respect to the status of a proceeding initiated in 1988 by The
City of New York to acquire by condemnation all of the water distribution system
of JWS that is located in New York City. Additionally, see Note X with respect
to the lawsuit brought by certain holders of warrants of participation against
Jamaica Water Securities Corp.
The assets of the water supply business consist primarily of utility plant and
equipment which are located in Nassau and Queens Counties in the State of New
York. The net assets of the water supply business, which aggregated $61.4
million at December 31, 1994 and $60.0 million at December 31, 1993 are
classified as either a short-term asset or a long-term asset in the accompanying
Consolidated Balance Sheets under the caption "Net assets held for sale." The
Company is actively pursuing the sale of the Water Companies and expects the
disposition of the water supply business to take place mid-year 1995.
Revenues of the water supply business were $65.0 million, $66.8 million and
$59.8 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Operating income of the water supply business was $14.3 million,
$15.4 million and $4.8 million for the years ended December 31, 1994, 1993 and
1992, respectively. The 1992 results included a provision of $7.0 million
related to the settlement of litigation referred to above.
Combined operating results of discontinued operations including both the
information services and water supply businesses for the years ended December
31, 1994, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues $64,993 $943,455 $1,752,171
Costs and expenses 50,725 917,872 1,935,349
------- -------- ----------
Operating income (loss) 14,268 25,583 (183,178)
Interest expense (4,052) (14,320) (18,944)
------- -------- ----------
Income (loss) before taxes 10,216 11,263 (202,122)
Provision for income taxes - - 1,617
------- -------- ----------
Income (loss) from discontinued operations $10,216 $ 11,263 $ (203,739)
======= ======== ==========
</TABLE>
As discussed above, in August 1993, the Company sold substantially all of its
information services businesses. The operating results of discontinued
operations in 1994 consists only of the water supply business.
NOTE Q BUSINESSES SOLD AND OTHER NET ASSETS HELD FOR SALE
For the years ended December 31, 1994 and 1993, the Company received cash
proceeds of $13.6 million and $30.8 million, respectively, from the sale of
certain non-core businesses and other assets, exclusive of the sale of Software
House. During 1994, the assets sold by the Company included the sale of the
Company's telephone systems business, its minority ownership in an environmental
business and other non-core businesses. In 1993, the Company sold substantially
all of the assets of its Software House subsidiary, the U.S. information
services business and certain other non-core businesses and other assets. The
Company realized a gain of $2.7 million
F-34
<PAGE>
from the sale of Software House. No material gain or loss was realized from the
aggregate of these sales in either 1994 or 1993.
For the year ended December 31, 1993, the Company received cash proceeds of
$43.4 million of which $12.6 million was from the sale of Software House and
approximately $30.8 million was from the sale of a number of other non-core
businesses and other assets. Additionally, the Company received notes and other
assets with an aggregate carrying value of $10.9 million.
On October 16, 1992, the Company completed the sale of five environmental
businesses for which it received net cash proceeds of $84.1 million. The five
businesses sold were two air pollution control businesses, JWP Air Technologies,
Inc. and JWP Amcec Corp., a sludge pelletization project located in New York
City and another in Baltimore, Maryland, and Enviro-Gro Technologies Co., a
sludge processing business. The Company realized a gain of approximately $12.0
million from the sale of these businesses. Additionally, the Company's Board of
Directors approved a plan for the sale of the Company's remaining energy and
environmental related businesses, other non-core businesses and certain
mechanical/electrical services operations. In connection with this asset
disposition plan, a loss of $88.1 million was provided for in 1992. The loss
represents the estimated loss to be realized upon the disposition of the
businesses held for sale. The loss consists of $24.1 million attributable to
the write-off of goodwill and $64.0 million related to the write-down of other
assets to net realizable value.
Revenues and operating losses of businesses sold and other net assets held for
sale for the years ended December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues $168,939 $257,910 $526,894
Operating (loss) (13,651) (11,802) (41,151)
</TABLE>
The 1994 revenues and operating loss above include certain retained assets and
liabilities of businesses sold ("Closeouts") which were not classified as Net
Assets Held for Sale in 1993 and 1992. Revenues and operating losses attributed
to Closeouts for 1993 and 1992 were $96.8 million, $1.9 million, $69.1 million
and $1.0 million, respectively.
A condensed balance sheet relating to discontinued operations (the water supply
business) and other net assets held for sale at December 31, 1994 is as follows
(in thousands):
<TABLE>
<S> <C>
Cash $ 5,020
Accounts receivable, net 54,290
Costs and estimated earnings
in excess of billings 10,051
Inventories 1,513
Other current assets 670
--------
71,544
Property, plant and equipment, net 151,973
Other assets 19,022
--------
$242,539
========
Current maturities of long-term debt
and capital lease obligations $ 8,391
Accounts payable 24,115
Billings in excess of costs and
estimated earnings 5,384
Other accrued expenses 60,944
--------
98,834
Long-term debt 58,213
Other long-term liabilities 30,091
Net assets held for sale 55,401
--------
$242,539
========
</TABLE>
F-35
<PAGE>
NOTE R RESTRUCTURING CHARGES
In 1992, the Company recorded $38.7 million of restructuring charges related to
continuing operations. The Company's business restructuring plan contemplated
the downsizing and consolidation of the Company's North American
mechanical/electrical services operations. The Company's strategy also provides
for the disposition of non-core businesses and certain mechanical/electrical
services operations. The restructuring charges consisted of $10.8 million
applicable to permanent impairment of goodwill and $27.9 million for severance
payments, facilities consolidation costs, provisions for contract losses and the
write-down of certain assets to net realizable value.
NOTE S INSURANCE RESERVES
The Company is primarily insured with an indirect wholly-owned captive insurance
subsidiary ("Defender") for its workers' compensation, automobile and general
liability insurance. The insurance liability is determined actuarially based on
claims filed and an estimate of claims incurred but not yet reported. The
present value of such claims was determined as of December 31, 1994 and 1993
using a 4% discount rate. The estimated current portion of the insurance
liability was $1.5 million and $17.7 million at December 31, 1994 and 1993,
respectively. Such amounts are included in "Other accrued expenses and
liabilities" in the accompanying Consolidated Balance Sheets. The non-current
portion of the insurance liability was $29.9 million and $41.0 million at
December 31, 1994 and 1993, respectively. Such amounts are included in "Other
long-term obligations". The undiscounted liability was approximately $35.9
million and $65.2 million at December 31, 1994 and 1993, respectively.
At January 1, 1994, the Company and Defender had letters of credit totaling
$36.4 million to secure certain insurance obligations. These letters of credit
were intended to serve as collateral for the obligations of Defender and the
Company to reimburse the Company's unrelated insurance carrier for claims paid
with respect to the insurance programs for the years 1988 through 1991. In
1994, $21.6 million was drawn upon by an insurance carrier and $13.9 million was
renewed by the issuing banks. A $0.9 million letter of credit that was to
expire in February 1995 was drawn upon in full by the insurance carrier in
December 1994. Since October 1992, neither the Company nor Defender has been
able to obtain additional letters of credit to secure their insurance
obligations, and, as a result they have been required to make cash collateral
deposits to an unrelated insurance company to secure those types of obligations.
The deposits totaled $37.6 million and $21.3 million as of December 31, 1994 and
1993, respectively, and are classified as a long-term asset in the accompanying
Consolidated Balance Sheets under the caption "Insurance Cash Collateral" in
other assets.
The Plan of Reorganization contemplates that the letters of credit described
above will be drawn upon in full by the unrelated insurance carriers either in
installments or at one time, and the Company's obligations to Defender, which
were pledged as collateral to the banks issuing the letters of credit, were
impaired in the proceeding as well as any related Company obligations to those
banks. Beginning in February 1994, Defender ceased making payments for the
amounts owed to the unrelated insurance carriers, which obligations are in
effect secured by the letters of credit, and the Company's insurance carriers
commenced partial draws upon certain of the letters of credit. Approximately
$22.5 million had been drawn upon these letters of credit through December 31,
1994, to reimburse claims, of which $13.7 million remains on deposit with the
insurance companies. Under the terms of the Company's Plan of Reorganization,
other than for the distributions provided for under the Plan of Reorganization
neither the Company nor Defender is obligated to the banks whose letters of
credit are drawn upon by the insurance carriers.
The Company is subject to regulation with respect to the handling of certain
materials used in construction which are classified as hazardous or toxic by
agencies at the Federal, State and local levels. The Company's
F-36
<PAGE>
policy is not to undertake projects principally involving the remediation or
removal of such materials. However, where remediation is a required part of
contract performance, the Company believes it complies with all applicable
regulations governing the discharge of material into the environment or
otherwise relating to the protection of the environment. The Company believes
that it presently maintains adequate insurance coverage for all of its current
operations.
NOTE T ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) during the year for:
Interest $ 7,250 $ 26,126 $ 62,582
Income taxes 720 (2,177) (15,617)
Significant non-cash financing and investment
transactions are as follows:
Notes receivable and other assets received from
sale of assets - 10,875 -
Debt assumed in acquisitions - - 929
Debt issued to acquire companies - - 2,566
Common stock issued for acquisitions - - 749
Fixed assets acquired under capital lease obligations - 46 1,616
</TABLE>
NOTE U TRANSLATION COMPONENTS OF SHAREHOLDERS' DEFICIT
Translation components of shareholders' deficit for the years ended December 31,
1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts transferred from cumulative translation
adjustment as a result of the sale or substantially
complete liquidation of investments in foreign entities $ - $ 890 $ -
Effect of balance sheet translation (173) (3,028) (8,737)
-------- --------- ---------
$ (173) (2,138) $ (8,737)
======== ========= =========
</TABLE>
F-37
<PAGE>
NOTE V SEGMENT INFORMATION
The following presents information about continuing operations by geographic
areas for the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
REVENUES LOSS ASSETS
--------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
United States $1,334,537 $ (9,773) $ 487,438
Europe 316,093 (5,464) 132,049
Canada 113,331 (6,966) 35,681
---------- --------- -----------
$1,763,961 $ (22,203) $ 655,168
========== ========= ===========
1993
United States $1,692,470 $ (57,906) $ 572,468
Europe 321,632 (4,403) 112,293
Canada 180,633 (3,223) 38,066
---------- --------- -----------
$2,194,735 $ (65,532) $ 722,827
========== ========= ===========
1992
United States $1,793,350 $(220,242) $ 582,426
Europe 386,003 (15,985) 145,435
Canada 225,224 615 61,218
---------- --------- ------------
$2,404,577 $(235,612) $ 789,079
========== ========= ============
</TABLE>
F-38
<PAGE>
NOTE W SELECTED UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
1994 QUARTERLY RESULTS March 31 June 30 Sept 30 Dec 31 Total
--------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $435,554 $433,541 $444,355 $ 450,511 $1,763,961
Gross profit 42,297 42,825 35,998 35,252 156,372
Reorganization items (3,600) (3,300) (3,200) (81,218) (91,318)
Loss from continuing operations
including reorganization items,
before extraordinary item,
cumulative effect of accounting
change (7,418) (6,289) (15,589) (89,638) (118,934)
Income from discontinued
operations 1,144 2,683 5,559 830 10,216
Extraordinary item - gain on debt
discharge - - - 413,249 413,249
Cumulative effect of change in
method of accounting for post-
employment benefits (2,100) - - - (2,100)
-------- -------- -------- ---------- ----------
Net (loss) income $ (8,374) $ (3,606) $(10,030) $ 324,441 $ 302,431
======== ======== ======== ========== ==========
Supplemental (loss) income per share:
Continuing operations $ (0.79) $ (0.67) $ (1.65) $ (9.51) $ (12.62)
Discontinued operations 0.12 0.28 0.59 0.09 1.08
Extraordinary item - gain on debt
discharge - - - 43.85 43.85
Cumulative effect of change in
method of accounting for
post-employment benefits (0.22) - - - (0.22)
-------- -------- -------- ---------- ----------
Net (loss) income per share $ (0.89) $ (0.39) $ (1.06) $ 34.43 $ 32.09
======== ======== ======== ========== ==========
</TABLE>
The loss from continuing operations including reorganization items in the fourth
quarter reflects $2.4 million of reorganization charges for various legal and
professional fees associated with the Chapter 11 proceeding. In addition a
charge of approximately $78.8 million was recorded to state assets and
liabilities at fair value in accordance with the principles of Fresh-Start
Accounting as required by SOP 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code."
All per share data has been restated to reflect the assumed issuance of new
common stock as of January 1, 1994.
F-39
<PAGE>
<TABLE>
<CAPTION>
1993 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31 TOTAL
----------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $563,879 $ 583,872 $ 565,845 $ 481,139 $2,194,735
Gross profit 58,554 47,604 40,117 4,902 151,177
Loss from continuing operations (11,830) (18,956) (19,660) (63,545) (113,991)
Income (loss) from discontinued
operations 1,718 3,026 (4,793) (9,038) (9,087)
-------- -------- -------- --------- ----------
Net loss $(10,112) $(15,930) $(24,453) $ (72,583) $ (123,078)
======== ======== ======== ========= ==========
</TABLE>
The loss from continuing operations in the fourth quarter of 1993 reflects a
provision of $37.2 million primarily for estimated losses on large uncompleted
contracts. The loss from discontinued operations in the fourth quarter of 1993
includes a $7.4 million charge to write-down the net assets of the water supply
business to estimated net realizable value and a $2.4 million loss from the sale
of the Company's information services business in Germany.
NOTE X LEGAL PROCEEDINGS
Since August 1992, nineteen purported class action lawsuits have been filed
against the Company arising out of the restatement of earnings, write-offs and
losses announced by the Company on August 4, 1992 and October 2, 1992. Pursuant
to Stipulation and Court Order, on January 15, 1993, a single consolidated
amended class action complaint (the "Complaint") was filed. The Complaint named
as defendants the Company, certain former officers and directors, a former
subsidiary officer and the Company's then independent auditor Ernst & Young.
The Complaint alleges violations of Section 10(b) of the Securities and Exchange
Act of 1934, Rule 10(b)-5 promulgated thereunder and common law fraud and deceit
on the part of the Company and certain other defendants. Among other things,
the Company is alleged to have intentionally and materially overstated its
inventory, accounts receivable and earnings in various public disseminations
during the purported class period May 1, 1991 through October 2, 1992. The
Complaint seeks an unspecified amount of damages. The Company denied the
material allegations in the Complaint. The parties are now engaged in discovery
proceedings. However, the Bankruptcy Court's order dated October 3, 1994,
confirming the Company's Plan of Reorganization, included a discharge of all
claims asserted against the Company in the class action lawsuit and a permanent
injunction against continuing these actions, or any other proceeding, with
respect to the claims asserted therein. Accordingly, on December 2, 1994 the
lawsuit against the Company was dismissed with prejudice.
The Company had been informed by the Securities and Exchange Commission (the
"SEC") that it was conducting a private investigation to determine whether there
were violations of certain provisions of the federal securities laws and/or the
rules and regulations of the SEC in connection with the Company's financial
records, reports and public disclosures. The Company cooperated with the SEC's
staff and voluntarily produced requested documents and information. On April
12, 1994, the SEC's staff informed the Company of its intention to recommend
that the SEC file a civil injunction against the Company. The Company is
currently engaged in discussions with the SEC's staff concerning a possible
consensual resolution of the matter.
In January 1992 the Public Service Commission of the State of New York ("PSC")
ordered its staff to perform an audit covering all aspects of operations of JWS.
The report on that audit alleged that mismanagement and imprudence on the part
of JWS may have resulted in excess charges to its customers of up to $10.6
million. As a result of the audit report, in June 1992 the PSC instituted a
proceeding requiring JWS to demonstrate that its rates charged to customers are
not excessive and provided for an investigation of JWS's management practices.
As part of this proceeding and citing the audit report's assertion without
receiving the audit report in evidence,
F-40
<PAGE>
the PSC ordered that $10.6 million of JWS's annual revenues be made temporary
and subject to refund, effective August 6, 1992, pending the completion of the
investigation.
Between December 1992 and May 1993 each of JWS, the PSC's staff, the New York
State Consumer Protection Board, Waterbill Watchdog, Inc., the County of Nassau,
the Town of Hempstead and others appeared and submitted testimony in the PSC
proceedings. On June 3, 1993, the PSC issued an order suspending hearings and
appointed two administrative law judges for the purpose of effecting a
settlement. Negotiations among the parties and through the judges were ongoing
from that time.
In addition, in February 1993, the County of Nassau commenced an action alleging
violations of the Racketeering Influenced Corrupt Organizations Act ("RICO") and
common law fraud based on allegations that JWS intentionally filed false rate
applications with the PSC and that, for the period from March 31, 1987 through
March 31, 1992, JWS had earnings that exceeded its projections by $8.7 million.
As a result of the negotiations, JWS, the New York State Consumer Protection
Board, Nassau County, certain other governmental bodies and a consumer advocate
group entered into a settlement dated December 22, 1993 (the "Settlement
Agreement") which, following approval by the PSC on February 2, 1994, settled
all issues outstanding before the PSC and various state courts and in the RICO
action. The Settlement Agreement provides, among other things (i) that JWS will
use its best efforts to bring about a separation of Jamaica Water Securities
Corporation ("JWSC"), a subsidiary of the Company which holds substantially all
of the common stock of JWS, from the Company and that JWSC will submit a plan to
the PSC for its separation from the Company and the formation of a separate
water works corporation to be incorporated under the New York State
Transportation Corporation law to provide water utility service to Nassau County
customers presently served by JWS; (ii) commitment by JWS that, subject to
limited specific exceptions, it will not seek to have a general rate increase
become effective prior to January 1, 1997, thus providing rate stability for
three years; (iii) for refunds and other payments to customers estimated to
aggregate approximately $11.7 million over the 1994-1997 period; and (iv) a cap
on earnings above which JWS will share with its customers its return on equity.
In 1986, the State of New York enacted a statute requiring The City of New York
(the "City") to acquire by condemnation all of the JWS property constituting or
relating to its water distribution system located in the City only if a Supreme
Court of the State of New York (the "Supreme Court") decides that the amount of
compensation to be paid for the system is determined solely by the income
capitalization method of valuation. If the Court determines compensation by a
method other than the income method capitalization or the award is for more than
the rate base of the condemned assets, the statute permits the City to withdraw
the proceeding without prejudice or costs. In 1988, the City instituted a
proceeding pursuant to the statute to acquire the system which constitutes
approximately 75% of JWS' water utility plant. JWS argued at trial that the
judicially recognized method for valuing public utility property is by the
method known as "Reproduction Cost New, Less Depreciation". JWS also sought
consequential and severance damages that would result from separating the JWS
Nassau County water supply system from that in the City. The aggregate amount
sought by JWS as of December 31, 1987 was approximately $924 million. The City
submitted its income capitalization valuation, as of December 31, 1987, at
approximately $63 million.
In June 1993, the Supreme Court dismissed the City's petition. The Supreme
Court concluded, among other things, that the statute is unconstitutional
because it directs the Court to render an advisory opinion. In February 1994,
the New York Court of Appeals held constitutional a nearly-identical statute
dealing with another water utility. In April 1994, upon a request made by the
City for reconsideration by the Court, the Court stated that it would reconsider
its prior decision in light of the February decision of the Court of Appeals.
The Company cannot predict when or if the Court will conduct further proceedings
under the statute nor is it possible to predict what the decision of the Court
might be if it decides to value the JWS property or the effect of the pending
litigation on the proposed sale of JWS.
F-41
<PAGE>
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against JWSC by filing a complaint in the Supreme
Court of the State of New York, Westchester County, bearing the caption, Harold
-------
F. Scattergood, Jr., et al. v. Jamaica Water Securities Corp. (Index No.
- -------------------------------------------------------------
15992/94). On October 17, 1994, an amended complaint was served adding
additional plaintiffs.
Plaintiffs seek a declaration that JWSC is the successor to the Company's
obligations under the Warrant Agreement by reason of its 1977 acquisition of
JWU's 96% stock interest in JWS. Plaintiffs also claim that three events have
triggered the Warrants, obligating JWSC to issue shares of its own stock to
plaintiffs: (1) the 1988 filing by The City of New York of a condemnation
proceeding and lis pendens seeking to condemn that part of the water
distribution system of JWS located in Queens County; (2) the prosecution of that
condemnation proceeding, which was subsequently dismissed by the court; and (3)
a 1993 settlement agreement entered into by JWSC and JWS which settled unrelated
matters involving the Public Service Commission, Nassau County and others.
Plaintiffs claim that each of these events constituted a disposition of the
assets of JWS which triggered the Warrants. In the alternative, plaintiffs
claim that the Warrant Agreement's December 31, 1994 expiration date should be
extended for some indefinite period. JWSC has moved to dismiss the complaint on
the grounds that it fails to state a cause of action.
In connection with an investigation of the plumbing industry being conducted by
the New York County District Attorney's Office, two related subsidiaries of the
Company engaged in the plumbing business in New York City received subpoenas for
certain of their books and records. The subsidiaries complied with those
subpoenas. Additionally, certain employees of these subsidiaries were
subpoenaed to testify as witnesses before a grand jury and those employees
complied with the subpoenas.
As part of an investigation by the District Attorney's office of New York County
into the business affairs of a general contractor that does business with the
Company's subsidiary, Forest Electric Corporation ("Forest"), in February 1995,
a search warrant was executed at Forest's executive offices. The Company has
been informed that Forest and certain of its officers are targets of the
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law.
The Dynalectric Company ("Dynalectric") is a defendant in an action entitled
Computran v. Dynalectric, et al., pending in Superior Court of New Jersey,
- -------------------------------
Bergen County, arising out of its participation in a joint venture. The
plaintiff, Computran, a participant in and a subcontractor to the joint venture,
alleges that Dynalectric wrongfully terminated it from the subcontract,
fraudulently diverted funds due it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with other defendants to commit certain acts in violation of the
New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric
believes that Computran's claims are without merit and intends to defend this
matter vigorously. Dynalectric has filed counterclaims against Computran.
Discovery is ongoing; no trial date is scheduled.
In addition to the above, the Company is involved in other legal proceedings and
claims which have arisen in the ordinary course of business. The Company
believes it has a number of valid defenses to these actions and the Company
intends to vigorously defend itself in these matters and does not believe that a
significant liability will result. However, the Company cannot predict the
outcome thereof or the impact that an adverse result of the matters discussed
above will have upon the Company's financial position or results of operations.
F-42
<PAGE>
NOTE Y ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). This standard requires that the cost of
benefits provided to former or inactive employees be recognized on an accrual
basis of accounting. Previously the Company recognized post-employment benefit
costs (primarily short-term disability and severance costs) when paid. The
cumulative effect of adopting SFAS 112 was to record a charge of $2.1 million as
of January 1, 1994. Such amount has been reflected in the Consolidated
Statements of Operations for the year ended December 31, 1994 under the caption
"Cumulative Effect of Change in Method of Accounting for Post-employment
Benefits." The adoption of SFAS 112 did not have a material effect on the 1994
loss before extraordinary item and cumulative effect of accounting changes.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Accounting For Post-retirement Benefits
Other Than Pensions" (SFAS 106). The actuarial present value of the accumulated
post-retirement benefit obligations under SFAS 106 approximated $7.0 million as
of December 31, 1993. Such amount relates to the Company's water supply
business which is included in "Net Assets held for Sale" in the accompanying
Consolidated Balance Sheets and "Discontinued Operations" in the accompanying
Consolidated Statements of Operations.
NOTE Z OTHER
JWS is subject to a PSC order which requires that dividend payments by JWS not
exceed 50% of JWS's net income available to common shareholders for the
preceding twelve month period and subject further to a debt/equity ratio
restriction. Under the PSC order, approximately $1.8 million of JWS's retained
earnings were available for the payment of dividends and $49.4 million of JWS's
retained earnings were restricted as of December 31, 1994.
In September 1992, the PSC issued an order requiring additional certifications
before the payment of JWS of cash dividends on its common stock. This resulted
in the suspension of dividend payments by JWS on its common stock for the last
two quarters of 1992 and all of 1993. As a result of the Settlement Agreement
described in Note X, JWS recommenced dividend payments on its common stock in
1994. Dividends paid by JWS to the Company on its common stock in 1994 amounted
to $1.1 million.
F-43
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF EMCOR GROUP, INC.
Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993
--------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 13,101 $ 6,984
Prepaid expenses and other current 3,852 3,985
assets
Net assets held for sale 55,401 20,454
--------------------
Total Current Assets 72,354 31,423
Net assets held for sale - 63,161
Investments, notes and other long-term
receivables - 452
Property and equipment, net 809 982
Other assets, principally investments
in and amounts due from wholly-owned
subsidiaries 306,529 220,053
--------------------
Total Assets $379,692 $ 316,071
====================
LIABILITIES AND SHAREHOLDERS (DEFICIT)
EQUITY:
Current Liabilities:
Current maturities of long-term debt $ 35,000 $ 744
Series A Notes 55,401
Debt in default - 501,007
Accrued expenses and other current
liabilities 118,007 74,419
--------------------
Total Current Liabilities 208,408 576,170
--------------------
Long Term Debt 59,782 -
Other long-term obligations 30,372 42,163
Shareholders' Equity (Deficit):
Common Stock 94 4,072
Other shareholders' equity (deficit) 81,036 (306,334)
--------------------
Total Shareholders' Equity (Deficit) 81,130 (302,262)
--------------------
Total Liabilities and Shareholders'
Equity (Deficit) $379,692 $ 316,071
====================
</TABLE>
S-I-1
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF EMCOR GROUP, INC.
Statement of Operations
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
(in thousands)
Management fees from wholly-owned
subsidiaries $ 11,090 $ 16,632 $ 29,825
Interest income (expense) income from
wholly-owned subsidiaries 13,202 (2,265) 3,243
Other interest income 925 557 899
------------------------------------
25,217 14,924 33,967
------------------------------------
Costs and expenses, net:
General, administrative and other
expenses 15,782 26,401 48,371
Interest expense 2,467 49,012 43,568
Net (gain) loss on businesses sold or
held for sale (1,183) (1,028) 76,078
Provision for losses on disposal of
discontinued operations - 20,350 49,491
------------------------------------
17,066 94,735 217,508
------------------------------------
Reorganization Items:
Professional fees (12,535) - -
Fresh-start adjustments (78,783) - -
------------------------------------
(91,318) - -
------------------------------------
(Loss) before income taxes, equity in
net (loss) income of subsidiaries,
extraordinary item and cumulative
effect of accounting change (83,167) (79,811) (183,541)
(Benefit) for income taxes - - -
Equity in net (loss) income of
subsidiaries - continuing operations (35,767) (54,530) (229,465)
Equity in net income (loss) of
subsidiaries - discontinued operations 10,216 11,263 (203,739)
Extraordinary Item - Gain on Debt
Discharge 413,249 - -
Cumulative effect of accounting change (2,100) - 4,315
------------------------------------
Net Income (Loss) $302,431 $(123,078) $(612,430)
====================================
</TABLE>
S-I-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF EMCOR GROUP, INC.
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Net Income (Loss) $302,431 $(123,078) $(612,430)
Adjustment to Reconcile Net Income
(Loss) to Cash (Used In) Provided by
Operating Activities
Depreciation and amortization 325 353 3,790
Write-off deferred debt issuance
cost - - 2,876
(Gain) loss on net assets held for
sale or sold (1,183) (1,028) 76,078
Provision for losses on disposal
of discontinued operations - 20,350 49,491
Cumulative effect of accounting
change (2,100) - (4,315)
Equity loss (income) of consolidated
subsidiaries 25,551 43,267 433,204
Other, net (27,305) - 17,962
-----------------------------------
297,719 (60,136) (33,344)
Change in Current Assets and Liabilities
Decrease (increase) in prepaid
expenses and other current assets 133 3,580 (3,135)
Increase (decrease) in accrued
expenses and other liabilities 43,588 61,175 11,317
Changes due to reorganization
activities:
Reorganization charges 12,535 - -
Gain on discharge of debt (413,249) - -
Net adjustments to accounts for
fair value 78,783 - -
-----------------------------------
Net Cash Provided by (Used in)
Operations 19,509 4,619 (25,162)
-----------------------------------
Cash Flows from Financing Activities
Proceeds from working capital
credit line 35,000 - -
Proceeds from debtor-in-possession
note payable 30,000 - -
Repayment of debtor-in-possession
note payable (30,000) - -
Proceeds from long-term debt - - 60,000
Payments of long-term debt and
capital lease obligation (206) (225) (23,789)
Proceeds from issuance of common
stock and exercise of stock options - - 1,911
Payment of preferred dividends - - (1,354)
Acquisition of common stock for the
treasury - - (8,130)
Increase in notes payable, net - - 695
Increase in insurance cash collateral (12,443) - -
-----------------------------------
Net Cash Provided by (Used in)
Financing Activities 22,351 (225) 29,333
-----------------------------------
Cash Flows from Investment Activities
Proceeds from sale of businesses and
other assets 13,620 43,400 138,971
(Increase) decrease in investments
and amounts due from
wholly-owned subsidiaries (49,212) (100,773) (63,884)
Acquisition of businesses - - (19,581)
Purchase of property and equipment,
net of retirements (151) - (1,958)
-----------------------------------
Net Cash (Used in) Provided by
Investment Activities (35,743) (57,373) 53,548
-----------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 6,117 (52,979) 57,719
Cash and Cash Equivalents at Beginning
of Year 6,984 59,963 2,244
-----------------------------------
Cash and Cash Equivalents at End of Year $ 13,101 $ 6,984 $ 59,963
===================================
</TABLE>
S-I-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF EMCOR GROUP, INC.
Notes to Condensed Financial Statements
(1) Basis of Presentation
The Company's investment in subsidiaries is stated at cost plus equity in
undistributed earnings (loss) of subsidiaries since dates of acquisition,
less write-offs related to permanent impairment of cost in excess of net
assets acquired. Net assets held for sale consist of the net assets of
wholly-owned subsidiaries that the Company plans to sell. Such net assets
are stated at estimated net realizable value. These financial statements
should be read in conjunction with the Company's consolidated financial
statements.
(2) Debt in Default
For a discussion and description of debt in default and long-term debt
refer to Notes A, C and D of the consolidated financial statements of EMCOR
Group, Inc. and Subsidiaries.
(3) Income Taxes
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" (SFAS 112). This standard requires that the cost of
benefits provided to former or inactive employees be recognized on an
accrual basis of accounting. Previously the Company recognized post-
employment benefit costs (primarily short-term disability and severance
costs) when paid. The cumulative effect of adopting SFAS 112 was to record
a charge of $2.1 million as of January 1, 1994. Such amount has been
reflected in the Consolidated Statements of Operations for the year ended
December 31, 1994 under the caption "Cumulative Effect of Change in
Accounting for Post-employment Benefits". The adoption of SFAS 112 did not
have a material effect on the 1994 loss before cumulative effect of change
in method of accounting for post-employment benefits.
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). The adoption of SFAS 109 changed the Company's method of
accounting for income taxes from the deferred method (APB 11) to an assets
and liability approach. Previously, the Company deferred the past tax
effect of timing differences between financial reporting and taxable
income. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and
liabilities. Prior years' financial statements have not been restated for
the accounting change. The cumulative effect of adopting SFAS 109 was to
record an income tax benefit of $4.3 million as of January 1, 1992.
At December 31, 1994 and 1993 (after having given effect to the adoption of
SFAS No. 109), the valuation allowances recorded against deferred tax
assets were $114.5 million and $170.1 million, respectively.
(4) Guarantees
The Company guarantees various obligations and credit agreements of its
wholly-owned subsidiaries. In addition, the Company guarantees a mortgage
note payable in the unpaid principal amount of approximately $6.0 million
secured by land and building owned by a former subsidiary. The Company
also guarantees certain contracts and performance bonds of its
subsidiaries.
S-I-4
<PAGE>
EMCOR GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
--------------------------------------------------------
Charged to
Balance at Charged to Other Net Assets Balance
Beginning Costs and Accounts Deductions Held for End of
Description of Year Expenses (2) (1) Sale Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year Ended December 31, 1994 $31,170 $ 2,909 $(7,695) $ (6,564) $ - $19,820
Year ended December 31, 1993 $42,630 $ 13,663 $ (892) $(24,231) $ - $31,170
Year ended December 31, 1992 $29,541 $113,903 $10,591 $(78,715) $(32,690) $42,630
</TABLE>
(1) Deductions represent uncollectible balances of accounts receivable written
off, net of recoveries.
(2) Amounts in 1992 and 1991 primarily represent valuation accounts related to
companies acquired.
S-II-1
<PAGE>
EXHIBIT INDEX
-------------
Unless otherwise indicated, all exhibits were filed with, or were
incorporated by reference into, the Company's Registration Statement on Form 10
as originally filed on March 17, 1995.
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
2(a) Disclosure Statement and Third Amended
Joint Plan of Reorganization (the "Plan of
Reorganization") proposed by EMCOR
Group, Inc. (formerly JWP INC.) (the
"Company" or "EMCOR") and its affiliate,
SellCo Corporation ("SellCo"), as approved
for dissemination by the United States
Bankruptcy Court, Southern District of
New York (the "Bankruptcy Court"), on
August 22, 1994.
2(b) Modification to the Plan of Reorganization
dated September 29, 1994.
2(c) Second Modification to the Plan of
Reorganization dated September 30, 1994.
2(d) Confirmation Order of the Bankruptcy
Court dated September 30, 1994 (the
"Confirmation Order"), confirming the Plan
of Reorganization, as amended.
2(e) Amendment to the Confirmation Order
dated December 8, 1994.
2(f) Post-confirmation modification to the Plan
of Reorganization entered on December
13, 1994.
3(a-1) Certificate of Incorporation filed March Exhibit 3(a-1) to Annual Report on Form 10-
31, 1987 K for fiscal year ended December 31, 1988
3(a-2) Copy of Agreement and Plan of Merger Exhibit (b) to Current Report on Form 8-K
dated April 1, 1987 between JWP INC., a for August 4, 1987
New York corporation, and JWP INC. a
Delaware corporation
3(a-3) Certificate of Amendment to Certificate of Exhibit 3(a-3) to Annual Report on Form 10-
Incorporation filed May 17, 1990 K for fiscal year ended December 31, 1990
3(a-4) Certificate of Designation filed August 15, Exhibit 4.1 to Quarterly Report on Form 10-
1991 Q for the quarter ended June 30, 1991
3(a-5) Restated Certificate of Incorporation of
EMCOR filed December 15, 1994.
3(b) By-Laws
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
4.1 Form of Credit Agreement dated as of Exhibit 4.14 to Annual Report on Form 10-K
February 14, 1994 among Registrant, for fiscal year ended December 31, 1992
certain subsidiaries thereof and Belmont
Capital Partners II, L.P.
4.2 Indenture, dated as of December 15, 1994,
among EMCOR, MES and SellCo, as
guarantors, and IBJ Schroder Bank &
Trust Company, as trustee, in respect of
EMCOR's 7% Senior Secured Notes,
Series A, Due 1997
4.3 Indenture, dated as of December 15, 1994,
among EMCOR, MES, as guarantor, and
Shawmut Bank Connecticut, National
Association, as trustee, in respect of
EMCOR's 11% Series C Notes, Due 2001.
4.4 Indenture, dated as of December 15, 1994,
between SellCo and Shawmut Bank
Connecticut, National Association, as
trustee, in respect of SellCo's 12%
Subordinated Contingent Payment Notes,
Due 2004.
10(a-1) First Mortgage Indenture ("Mortgage") Exhibit B-1 to Form S-1, Registration
dated December 1, 1936 of a subsidiary of Statement No. 2-3995 of JWS
Registrant, Jamaica Water Supply
Company ("JWS")
10(a-2) Supplemental Indenture to First Mortgage Exhibit 1 to Annual Report on Form 10-K for
dated December 1, 1953 of JWS fiscal year ended December 31, 1953
10(a-3) Supplemental Indenture to First Mortgage Exhibit 1 to Current Report on Form 8-K for
dated May 1, 1962 of JWS August 1962 of JWS
10(a-4) Supplemental Indenture to First Mortgage Exhibit 4.21 to Form S-1, Registration
dated May 1, 1970 of JWS Statement No. 2-62590
10(a-5) Supplemental Indenture to First Mortgage Exhibit 4.22 to Form S-1, Registration
dated February 15, 1975 of JWS Statement No. 2-62590
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
10(a-6) Supplemental Indenture to First Mortgage Exhibit 4.23 to Form S-1, Registration
dated January 1, 1978 Statement No. 2-62590
10(a-7) Supplemental Indenture to Mortgage dated Exhibit 10(a-7) to S-1, Registration
as of April 1, 1981 of JWS Statement No. 2-86988
10(a-8) Supplemental Indenture to Mortgage dated Exhibit 10(a-8) to Form S-1 Registration
as of August 1, 1983 of JWS Statement No. 2-86988
10(a-9) Supplemental Indenture to Mortgage dated Exhibit 10(a-9) to Annual Report on 10-K for
as of December 1, 1984 fiscal year December 31, 1985
10(b-1) Agreement and Plan of Merger dated as of Exhibit (c)(2) to the Schedule 14D-1
June 3, 1991 among Businessland, Inc.,
JWP INC., and JWP Acquisition, Inc.
10(b-2) Asset Purchase Agreement dated July 16, Exhibit 2 to Form 8-K; Date of Report;
1993 by and among the Registrant, JWP August 6, 1993
Information Services, Inc. and ENTEX
Information Services, Inc.
10(c-1) Employment Agreement dated as of Exhibit 10(e) to Annual Report on Form 10-
September 14, 1987 between the Registrant K for fiscal year ended December 31, 1987
and Sheldon I. Cammaker
10(c-2) Amendment dated March 15, 1988 to Exhibit 10(f) to Annual Report on Form 10-K
Employment Agreement dated as of for fiscal year ended December 31, 1987
September 14, 1987 between Registrant
and Sheldon I. Cammaker
10(d) Letter Agreement dated November 16, Exhibit 10(d) to Annual Report on Form 10-
1992 between the Registrant and Edward K for fiscal year ended December 31, 1992
F. Kosnik
10(e) Letter Agreement dated December 21, Exhibit 10(e) to Annual Report on Form 10-
1992 between the Registrant and Stephen K for fiscal year ended December 31, 1992
H. Meyers
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
10(f) Separation Agreement dated as of June 30, Exhibit 10(l) to Annual Report on Form 10-K
1993 between Registrant and Andrew T. for fiscal year ended December 31, 1992
Dwyer
10(g) Consulting Agreement dated as of June 30, Exhibit 10(m) to Annual Report on Form 10-
1993 between JWP Mechanical/Electrical K for fiscal year ended December 31, 1992
Services, Inc. and Andrew T. Dwyer
10(h) Restricted Stock Agreement dated as of Exhibit 10(n) to Annual Report on Form 10-
November 24, 1992 between Registrant and K for fiscal year ended December 31, 1992
Edward F. Kosnik
10(i) Restricted Stock Agreement dated as of Exhibit 10(o) to Annual Report on Form 10-
January 3, 1992 between Registrant and K for fiscal year ended December 31, 1992
David L. Sokol
10(j) Letter Agreement dated as of June 30, Exhibit 10(p) to Annual Report on Form 10-
1993 between Drake & Scull Holdings Ltd. K for fiscal year ended December 31, 1992
and Registrant and Steven H. Kornfeld
10(k) Letter Agreement dated August 21, 1992 Exhibit 10(q) to Annual Report on Form 10-
between Registrant and David L. Sokol K for fiscal year ended December 31, 1992
10(l) Employees' Severance Pay/Stay Bonus Exhibit 10(r) to Annual Report on Form 10-K
Plan, as amended and restated as of for fiscal year ended December 31, 1992
March 16, 1994
10(m) Restricted Stock Agreement dated as of Exhibit 10(s) to Annual Report on Form 10-K
January 15, 1993 between Registrant and for fiscal year ended December 31, 1992
Stephen H. Meyers
10(n) Employment Agreement dated as of April Exhibit 10(t) to Annual Report on Form 10-K
18, 1994 between Registrant and Frank T. for fiscal year ended December 31, 1992
MacInnis.
10(o) 1994 Management Stock Option Plan
/*/10(p) 1995 Non-Employee Directors' Non-
Qualified Stock Option Plan
/*/10(q) Form of Indemnification Agreement
</TABLE>
- -------------------------
/*/ Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
10(r) Reliance Insurance Companies'
Underwriting and Continuing Indemnity
Agreement dated as of November 22, 1994,
among the Company, Dyn Specialty
Contracting, Inc. ("Dyn"), B&B
Contracting & Supply Company ("B&B"),
Dynalectric Company ("Dyn Co."),
Dynalectric Company of Nevada ("Dyn-
Nevada"), Contra Costa Electric, Inc.
("Contra Costa"), Kirkwood Electric Co.,
Inc. ("Kirkwood") and Reliance Surety
Company, Reliance Insurance Company,
United Pacific Insurance Company,
Reliance National Indemnity Company,
Reliance National Insurance Company of
New York and Reliance Insurance
Company of Illinois.
10(s) Form of Security Agreement dated as of
November 22, 1994 made by each of Dyn,
B&B, Dyn Co., Dyn-Nevada, Contra Costa,
and Kirkwood, in favor of and for the
benefit of Reliance Surety Company,
Reliance Insurance Company, United
Pacific Insurance Company, Reliance
National Indemnity Company and Reliance
Insurance Company of Illinois.
10(t) Pledge Agreement dated November 22,
1994 between the Company and Reliance
Surety Company, Reliance Insurance
Company, United Pacific Insurance
Company, Reliance National Indemnity
Company and Reliance Insurance
Company of Illinois.
10(u) Pledge Agreement dated November 22,
1994 between Dyn and Reliance Surety
Company, Reliance Insurance Company,
United Pacific Insurance Company,
Reliance National Indemnity Company and
Reliance Insurance Company of Illinois.
10(v) Subordination Agreement dated November
22, 1994 among Dyn, Dyn Co., B&B, Dyn-
Nevada, Contra Costa and Kirkwood and
Reliance Surety Company, Reliance
Insurance Company, United Pacific
Insurance Company, Reliance National
Indemnity Company and Reliance
Insurance Company of Illinois.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. INCORPORATED BY REFERENCE TO REGISTRANT'S
- ----------- -----------------------------------------
<S> <C> <C>
10(w) Credit Agreement dated December 14,
1994 among the Company, MES, certain
direct and indirect subsidiaries of MES
and Belmont Capital Partners II, L.P. and
other lenders (collectively, the "Lenders").
10(x) Guarantor Security Agreement dated
December 14, 1994 by and among certain
direct and indirect subsidiaries of MES,
the Lenders and CoreStates Bank, N.A., as
agent for the Lenders (the "Agent").
10(y) Pledge and Security Agreement dated
December 14, 1994 by and among the
Company, MES, the Lenders and the
Agent.
10(z) Credit Agreement dated December 14,
1994 among the Company, Dyn, certain
direct subsidiaries of Dyn and the Lenders.
10(aa) Guarantor Security Agreement dated
December 14, 1994 by and among certain
direct subsidiaries of Dyn, the Lenders and
the Agent.
10(bb) Pledge and Security Agreement dated
December 14, 1994 by and among the
Company, Dyn, the Lenders and the
Agent.
21 List of Subsidiaries
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of long-
term debt of the Registrant's subsidiaries.
<PAGE>
Exhibit 10(p)
1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED
STOCK OPTION PLAN
OF
EMCOR GROUP, INC.
1. Purpose. The purpose of this Stock Option Plan is to advance the
-------
interests of the Corporation by encouraging and enabling the acquisition of a
personal proprietary interest in the Corporation by Non-Employee Directors of
the Corporation upon whose judgment and keen interest the Corporation is largely
dependent for the successful conduct of its business and by providing such Non-
Employee Directors with incentives to put forth maximum efforts for the success
of the Corporation's business. It is anticipated that the acquisition of such
proprietary interest in the Corporation and such incentives will stimulate the
efforts of Non-Employee Directors on behalf of the Corporation and strengthen
their desire to remain with the Corporation. It is also expected that such
incentives and the opportunity to acquire such a proprietary interest will
enable the Corporation to attract desirable Non-Employee Directors.
2. Definitions. When used in this Plan, unless the context otherwise
-----------
requires:
(a) "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(c) "Corporation" shall mean EMCOR Group, Inc., a Delaware
corporation.
(d) "Effective Date" shall mean the effective date of the Plan as set
forth in Section 17.
(e) "Fair Market Value" on a specified date shall mean the closing
price at which a Share is traded on the stock exchange, if any, on which
Shares are primarily traded or, if the Shares are not then traded on a
stock exchange, the closing price of a Share as reported on the NASDAQ
National Market System or, if the Shares are not then traded on the NASDAQ
National Market System, the average of the closing bid and ask prices at
which a Share is traded on the over-the-counter market, but if no Shares
were traded on such date, then on the last previous date on which a Share
was so traded, or, if none of the above are applicable, the value of a
Share as determined by an unaffiliated investment banking firm selected by
the Board of Directors.
<PAGE>
(f) "Non-Employee Director" shall mean a director of the Corporation
who is not an employee of the Corporation or a Subsidiary.
(g) "Options" shall mean the Stock Options granted pursuant to this
Plan.
(h) "Plan" shall mean this 1995 Non-Employee Directors' Non-Qualified
Stock Option Plan of EMCOR Group, Inc., as adopted by the Board of
Directors on March 20, 1995, as such Plan from time to time may be amended.
(i) "President" shall mean the person who at the time shall be the
President of the Corporation.
(j) "Share" shall mean a share of common stock of the Corporation.
(k) "Subsidiary" shall mean any corporation 50% or more of whose
stock having general voting power is owned by the Corporation, or by
another Subsidiary as herein defined, of the Corporation.
3. Participants. The class of persons who are potential recipients of
------------
Options granted under this Plan consists of Non-Employee Directors. The Non-
Employee Directors to whom Options are granted under this Plan, and the number
of Shares subject to each such Option, shall be determined in accordance with
the terms and conditions of this Plan.
4. Shares. Subject to the provisions of Section 12 hereof, the aggregate
------
number of Shares which may be the subject of Options granted under the Plan is
200,000 Shares, all of which Shares may be either Shares held in treasury or
authorized but unissued Shares. If the Shares that would be issued or
transferred pursuant to any Option are not issued or transferred and cease to be
issuable or transferable for any reason, the number of Shares subject to such
Option will no longer be charged against the limitation provided for herein and
may again be made subject to Options; provided, that the counting of Shares
subject to Options granted under the Plan against the number of Shares available
for further Options shall in all cases conform to the requirements of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
5. Grant of Options. Each person who is a Non-Employee Director on the
----------------
Effective Date shall be granted an Option on the Effective Date to purchase
7,500 Shares. Each person who is elected to serve as a Non-Employee Director
after the Effective Date, including Non-Employee Directors on the Effective
Date, shall be granted an Option to purchase 3,000 Shares during each
-2-
<PAGE>
calendar year, beginning with 1995, on the date on which the Board of Directors
holds its first meeting following the annual meeting of stockholders of the
Corporation held during such calendar year provided such person is then a Non-
Employee Director. Notwithstanding the foregoing, if, beginning with 1996, an
annual meeting of stockholders of the Corporation does not occur within the
period ending on the last day of the 16th month following the month in which the
prior year's annual meeting of stockholders of the Corporation was held, then
such Option shall be granted on the last day of such 16th month to each then
Non-Employee Director and no additional Options shall be granted in respect of
such calendar year to any Non-Employee Director who received such Option.
A certificate of Option in the form attached hereto as Exhibit A, signed by
the Chairman of the Board or the President or a Vice President of the
Corporation, attested by the Treasurer or an Assistant Treasurer, or Secretary
or an Assistant Secretary of the Corporation and bearing the seal of the
Corporation affixed thereto, shall be issued to each person to whom an Option is
granted. The certificate of Option for an Option shall be legended to indicate
that it is not an incentive stock option that meets the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the"Code").
6. Purchase Price. The purchase price per Share of the Shares to be
--------------
purchased pursuant to the exercise of an Option shall be the Fair Market Value
of a Share on the date such Option is granted.
7. Duration of Options. The duration of any Option granted under this
-------------------
Plan shall be for a period of ten years from the date upon which the Option is
granted.
8. Exercise of Options. Options shall be fully exercisable by the holder
-------------------
as of the date of grant; provided, however, that no Options may be exercised in
part or in full prior to the approval of the Plan by a majority vote of the
stockholders of the Corporation as provided in Section 17.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together with
the Option certificate and the full purchase price of the Shares purchased
pursuant to the exercise of the Option, to the Chairman of the Board or an
officer of the Corporation appointed by the Chairman of the Board for the
purpose of receiving the same. Payment of the full purchase price shall be made
as follows: in cash or by check payable to the order of the Corporation; by
delivery to the Corporation of Shares which shall be valued at their Fair Market
Value on the date of exercise of the Option (provided, that a holder may not use
any Shares acquired pursuant to this
-3-
<PAGE>
Plan or any other plan maintained by the Company or a Subsidiary unless the
holder has beneficially owned such Shares for at least six months); or by
providing with the Exercise Notice an order to a designated broker to sell part
or all of the Shares and to deliver sufficient proceeds to the Corporation, in
cash or by check payable to the order of the Corporation, to pay the full
purchase price of the Shares and all applicable withholding taxes, if any.
Within a reasonable time after the exercise of an Option, the Corporation
shall cause to be delivered to the person entitled thereto, a certificate for
the Shares purchased pursuant to the exercise of the Option. If the Option
shall have been exercised with respect to less than all of the Shares subject to
the Option, the Corporation shall also cause to be delivered to the person
entitled thereto a new Option certificate in replacement of the certificate
surrendered at the time of the exercise of the Option, indicating the number of
Shares with respect to which the Option remains available for exercise, or the
original Option certificate shall be endorsed to give effect to the partial
exercise thereof.
Notwithstanding any other provision of the Plan or of any Option, no Option
granted pursuant to the Plan may be exercised at any time when the Option or the
granting or exercise thereof violates any law or governmental order or
regulation.
9. Consideration for Options. Options shall be granted under the Plan in
-------------------------
consideration of the services of participants in the Plan.
10. Non-transferability of Options. Options and all other rights
------------------------------
thereunder shall be non-transferable or non-assignable by the holder thereof
otherwise than by will or the laws of descent and distribution. Options may be
exercised or surrendered during the holder's lifetime only by the holder thereof
or his guardian or legal representative.
11. No Effect Upon Termination of Service. The holder may exercise any
-------------------------------------
unexercised portion of such Option at any time prior to the expiration of the
term of such Option regardless of an Optionholder's cessation or termination of
service as a director of the Corporation for any reason. In the event of the
holder's death at any time prior to the expiration of the term of an Option and
before it is exercised in full, the executors, administrators, legatees or
distributees of the holder's estate shall have the privilege of exercising any
unexercised portion of such Option at any time prior to the expiration of the
term of such Option.
-4-
<PAGE>
12. Adjustment Provision. If prior to the complete exercise of any Option
--------------------
there shall be declared and paid a stock dividend upon the Shares or if the
Shares shall be split up, converted, exchanged, reclassified, or in any way
substituted for, then the Option, to the extent that it has not been exercised,
shall entitle the holder thereof upon the future exercise of the Option to such
number and kind of securities or cash or other property subject to the terms of
the Option to which he would have been entitled had he actually owned the Shares
subject to the unexercised portion of the Option at the time of the occurrence
of such stock dividend, split-up, conversion, exchange, reclassification or
substitution, and the aggregate purchase price upon the future exercise of the
Option shall be the same as if the originally optioned Shares were being
purchased thereunder.
Any fractional shares or securities issuable upon the exercise of the
Option as a result of such adjustment shall be payable in cash based upon the
Fair Market Value of such shares or securities at the time of such exercise. If
any such event should occur, the number of Shares with respect to which Options
remain to be issued, or with respect to which Options may be reissued, shall be
adjusted in a similar manner.
Notwithstanding the foregoing, upon the dissolution or liquidation of the
Corporation, or the occurrence of a merger or consolidation in which the
Corporation is not the surviving corporation, or in which the Corporation
becomes a subsidiary of another corporation or in which the voting securities of
the Corporation outstanding immediately prior thereto do not continue to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting
securities of the Corporation or such surviving entity immediately after such
merger or consolidation, or upon the sale of all or substantially all of the
assets of the Corporation, this Plan and the Options granted hereunder shall
terminate unless provision is made by the Corporation in connection with such
transaction for the assumption of Options theretofore granted, or the
substitution for such Options of new options of the successor corporation or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and the per share exercise prices. In the event the Options
terminate as aforesaid in connection with such a dissolution, liquidation,
merger, consolidation or sale, the holder of any such Option shall be entitled
to receive from the Corporation cash in an amount equal to the excess of (i) the
Fair Market Value (determined on the basis of the amount received by
stockholders in connection with such transaction) of the Shares subject to the
portion of the Option not theretofore exercised, over (ii) the aggregate
purchase price which would be payable for such Shares upon the exercise of the
Option. In the event of any other change in the corporate structure or out-
-5-
<PAGE>
standing Shares, the Board of Directors shall make such adjustments to the
number of Shares and the class of shares available hereunder or to any
outstanding Option as shall be necessary to prevent dilution or enlargement of
rights.
13. Issuance of Shares and Compliance with Securities Act. The
-----------------------------------------------------
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Option until the completion of such registration or
other qualification of such Shares under any State or Federal law, rule or
regulation as the Corporation shall determine to be necessary or advisable. Any
holder of an Option shall make such representations and furnish such information
as may, in the opinion of counsel for the Corporation, be appropriate to permit
the Corporation, in the light of the then existence or non-existence with
respect to such Shares of an effective Registration Statement under the
Securities Act of 1933, as from time to time amended (the "Securities Act"), to
issue the Shares in compliance with the provisions of the Securities Act or any
comparable act. The Corporation shall have the right, in its sole discretion,
to legend any Shares which may be issued pursuant to the grant or exercise of
any Option, or may issue stop transfer orders in respect thereof.
14. Income Tax Withholding. If the Corporation shall be required to
----------------------
withhold any amounts by reason of any Federal, State or local tax rules or
regulations in respect of the issuance of Shares pursuant to the exercise of any
Option, the Corporation shall be entitled to deduct and withhold such amounts
from any cash payments to be made to the holder of such Option. In any event,
the holder shall make available to the Corporation, promptly when requested by
the Corporation, sufficient funds to meet the requirements of such withholding;
and the Corporation shall be entitled to take and authorize such steps as it may
deem advisable in order to have such funds made available to the Corporation out
of any funds or property due or to become due to the holder of such Option.
15. Administration and Amendment of the Plan. Except as hereinafter
----------------------------------------
provided, the Board of Directors may at any time withdraw or from time to time
amend the Plan as it relates to, and the terms and conditions of, any Option not
theretofore granted, and the Board of Directors, with the consent of the
affected holder of an Option, may at any time withdraw or from time to time
amend the Plan as it relates to, and the terms and conditions of, any
outstanding Option; provided, however, that any amendment by the Board of
Directors which would increase the number of Shares issuable under the Plan,
change the class of persons eligible to participate in the Plan or materially
increase the benefits to participants in the Plan shall be subject to the
approval of the stockholders of the Corporation; and provided, further, that no
provision of the Plan that
-6-
<PAGE>
specifies the directors who may receive Options, the timing of Option grants,
the number or purchase price of Shares that may be purchased under Options, or
the time when Options may be exercised, shall be amended more than once every
six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act. Any
provision inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
16. No Right of Service. Nothing contained herein or in an Option shall
-------------------
be construed to confer on any participant in the Plan any right to continue to
serve as a director of the Corporation.
17. Effective Date of the Plan. This Plan is conditioned upon its
--------------------------
approval at the next special or annual meeting of the stockholders of the
Corporation on or before June 30, 1996 by the vote of the holders of a majority
of the stock of the Corporation present in person or by proxy and entitled to
vote at such meeting; except that this Plan is adopted and approved by the Board
of Directors effective March 20, 1995 to permit the grant of Options prior to
the approval of the Plan by the stockholders of the Corporation as aforesaid.
In the event that this Plan is not approved by the stockholders of the
Corporation as aforesaid, this Plan and any Options granted hereunder shall be
void and of no force or effect.
-7-
<PAGE>
Exhibit A
---------
OPTION CERTIFICATE
NON-QUALIFIED STOCK OPTION
(Non-Assignable)
___________ Shares
To Purchase Common Stock of
EMCOR GROUP, INC.
Issued Pursuant to the 1995
Non-Employee Directors' Non-Qualified
Stock Option Plan of EMCOR Group, Inc.
THIS CERTIFIES that on ________________, 19__,
_________________________________ (the "Holder") was granted an option
("Option"), which is not an incentive stock option, to purchase at the Option
price of $_________ per share all or any part of ____________________ fully paid
and non-assessable shares ("Shares") of the Common Stock (par value $0.01 per
share) of EMCOR Group, Inc. ("Corporation"), a Delaware corporation, upon and
subject to the following terms and conditions.
This Option shall expire on _________________, 20__.
This Option may be exercised or surrendered during the Holder's lifetime
only by the Holder. This Option shall not be transferable by the Holder
otherwise than by will or by the laws of descent and distribution.
A-1
<PAGE>
The Option and this Option certificate are issued pursuant to and are
subject to all of the terms and conditions of the Corporation's 1995 Non-
Employee Directors' Non-Qualified Stock Option Plan, the terms and conditions of
which are hereby incorporated as though set forth at length, and the receipt of
a copy of which the Holder hereby acknowledges by his receipt of this
certificate.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.
Dated: _______________________, 19__.
(SEAL) EMCOR GROUP, INC.
By:
-----------------------------
ATTEST:
By:
-----------------------------------
A-2
<PAGE>
Exhibit 10(q)
AGREEMENT, effective as of __________, 1995, between EMCOR GROUP, INC., a
Delaware corporation (the "Company"), and _____________ (the "Indemnitee").
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, and Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it has become increasingly more difficult to
obtain such insurance on terms providing reasonable protection at reasonable
cost;
WHEREAS, the By-laws of the Company require the Company to indemnify
expenses to its directors and officers to the full extent permitted by law and
Indemnitee has been serving and continues to serve as a director or officer of
the Company in part in reliance on such By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and Indemnitee's reliance on the aforesaid
By-laws, and in part to provide Indemnitee with specific contractual assurance
that the protection afforded by such By-laws will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such By-
laws or any change in the composition of the Company's Board of Directors or
acquisition transaction relating to the Company), the Company wishes to provide
in this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the full extent (whether partial or complete) permitted by law and
as set forth in this Agreement, and, to the extent insurance is maintained, for
the continued coverage of Indemnitee under the Company's directors' and
officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee's
service to the Company, directly or indirectly, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. In the event Indemnitee was, is or becomes a party to or a witness or
other participant in, or is threatened to be made a party to, or a witness or
other participant in, any
<PAGE>
threatened, pending or completed action, suit or proceeding, or any inquiry or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(a "Claim") by reason of (or arising in part out of) the fact that Indemnitee is
or was a director, officer, employee, agent or fiduciary of the Company, or is
or was serving at the request of the Company as a director, officer, employee,
trustee, agent or fiduciary of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, or by reason of anything done
or not done by Indemnitee in any such capacity (an "Indemnifiable Event"), the
Company shall indemnify Indemnitee, to the fullest extent permitted by law as
soon as practicable but in any event no later than ten days after written demand
is presented to the Company, against any and all expenses (including attorneys'
fees and all other costs, expenses and obligations paid or incurred by
Indemnitee in connection with investigating, preparing for and defending or
participating in the defense of (including an appeal) any Claim relating to any
Indemnifiable Event actually and reasonably incurred by Indemnitee)
(collectively "Expenses"), judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such judgments, fines, penalties or
amounts paid in settlement) of such Claim. If so requested by Indemnitee, the
Company shall advance (within ten days of such request) any and all such
Expenses to Indemnitee; provided, however, that if, when and to the extent that
an appropriate person or body (the "Reviewing Party") determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid and the Company shall cease
to advance expenses (unless Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law, in which event
Indemnitee shall be entitled to have his expenses advanced and shall not be
required to so reimburse the Company until a final judicial determination
requiring such reimbursement is made with respect thereto as to which all rights
of appeal therefrom have been exhausted or lapsed). If there has not been a
Change in Control of the Company (as hereinafter defined), the Reviewing Party
(which can, but does not have to, be the disinterested members of the Board of
Directors or a committee comprised of one or more disinterested members of the
Board of Directors) shall be selected by the Board of Directors. If there has
been a Change of Control of the Company (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), the Reviewing Party
shall be the special,
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independent counsel referred to in Section 2 hereof. If, by the expiration of
the foregoing ten-day period, Indemnitee has not been indemnified or received
expense advances or the Reviewing Party determines that Indemnitee would not be
permitted to be indemnified or be entitled to expense advances in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking from the court a finding that Indemnitee is entitled to
indemnification and expense advances or enforcement of Indemnitee's entitlement
to indemnification and expense advances or challenging any determination by the
Reviewing Party or any aspect thereof that Indemnitee is not entitled to be
indemnified or receive expense advances; any determination by the Reviewing
Party otherwise shall be conclusive and binding on the Company and Indemnitee.
Indemnitee agrees to bring any such litigation in any court in the states of New
York, Connecticut, or Delaware having subject matter jurisdiction thereof and in
which venue is proper, and the Company hereby consents to service of process and
to appear in any such proceeding.
2. The Company agrees that if there is a Change in Control of the Company
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such Change
in Control) then with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnity payments and expense advances under this
Agreement or any other agreement or By-laws nor or hereafter in effect relating
to Claims for Indemnifiable Events (including any Claim for Indemnifiable Events
arising prior to such Change in Control), the Company shall seek legal advice
only from special, independent counsel selected by Indemnitee and approved by
the Company (which approval shall not be unreasonably withheld or delayed).
Unless Indemnitee has selected counsel pursuant to this Section 2 and such
counsel has been approved by the Company (which approval shall not be
unreasonably withheld or delayed), the firms in the attached Exhibit "A" shall
be deemed to satisfy the requirements set forth above. Such counsel, among
other things, shall determine whether and to what extent Indemnitee is permitted
to be indemnified, is entitled to expense advances under applicable law, or is
obligated to reimburse the Company for expenses advanced and shall render its
written opinion to the Company and Indemnitee to such effect. For purposes of
this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities,
or (ii) during any period
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of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets. The
Company agrees to pay the reasonable fees of the special, independent counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto except
for willful misconduct or gross negligence.
3. (a) In the event of a Potential Change in Control (as defined below)
which has not ceased to exist, the Company shall, upon written request by
Indemnitee, create a trust for the benefit of Indemnitee and from time to time
upon written request of Indemnitee shall fund such trust in an amount sufficient
to satisfy any and all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with investigating, preparing for and
defending any Claim relating to an Indemnifiable Event, and any and all
judgments, fines, penalties and settlement amounts of any and all Claims
relating to an Indemnifiable Event from time to time actually paid or claimed,
reasonably anticipated or proposed to be paid. The amount or amounts to be
deposited in the trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party, in any case in which the independent legal
counsel referred to above is involved. The terms of the trust shall provide
that upon a Change in Control (i) the trust shall not be revoked or the
principal thereof invaded, without the written consent of Indemnitee, (ii) the
trustee shall advance, within ten days of a request by Indemnitee, any and all
Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the trust
under the circumstances under which Indemnitee would be required to reimburse
the Company under
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Section 1 of this Agreement), (iii) the trust shall continue to be funded by the
Company in accordance with the funding obligation set forth above, (iv) the
trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall
be entitled to indemnification pursuant to this Agreement or otherwise, and (v)
all unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be a bank organized under the laws of the
United States of America or of any state and having a combined capital surplus
of at least $50,000,000 and shall be chosen by Indemnitee. Nothing in this
Section 3 shall relieve the Company of any of its obligations under this
Agreement.
(b) A "Potential Change In Control" shall be deemed to have occurred if
(i) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company, who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 9.5% or more of the
combined voting power of the Company's then outstanding voting securities,
increases his beneficial ownership of such securities by five percentage points
(5%) or more over the percentage so owned by such person; or (iv) the Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
4. In the event the Company shall be obligated hereunder to pay Expenses
of any action, suit or proceeding against Indemnitee, the Company shall be
entitled to assume the defense of such proceeding, with counsel approved by
Indemnitee (such approval not to be unreasonably withheld or delayed) upon the
delivery to Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding; provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
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5. The Company shall indemnify Indemnitee against any and all expenses
(including attorneys' fees) and, if requested by Indemnitee, shall (within ten
days of such request) advance such expenses to Indemnitee, which are incurred by
Indemnitee in connection with any claim asserted or action brought by Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-laws now or hereafter in effect
relating to Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance payment of Expenses or insurance recovery, as the
case may be.
6. If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
fines, penalties and amounts paid in settlement of a Claim but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any or
all Claims relating in whole or in part to an Indemnifiable Event or in defense
of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith. In connection with any determination by the Reviewing Party or
otherwise as to whether Indemnitee is entitled to be indemnified hereunder the
burden of proof shall be on the Company to establish that Indemnitee is not so
entitled.
7. For purposes of this Agreement, the termination of any Claim by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
Indemnitee is not entitled to indemnification or expense advance or that
indemnification or expense advance is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
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8. The rights of Indemnitee hereunder shall be in addition to any other
rights Indemnitee may have under the Company's By-laws as in effect on the date
of this Agreement or the Delaware General Corporation Law or otherwise. To the
extent a change in the Delaware General Corporation Law (whether by statute or
judicial decision) permits greater indemnification by agreement than would be
afforded currently under the Company's By-laws and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
9. Indemnitee shall notify the Company in writing of the institution of
any action, suit, proceeding, inquiry or investigation that is or may be subject
to this Agreement. Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power. No legal action under this Agreement shall be brought and no cause of
action under this Agreement shall be asserted by or in the right of the Company
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company under this
Agreement shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; provided, however,
that, if any shorter period of limitations is otherwise applicable to any such
cause of action, such shorter period shall govern.
10. To the extent the Company maintains an insurance policy or policies
providing directors' and officers' liability insurance. Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any Company director or
officer.
11. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
12. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
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13. The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
By-laws or otherwise) of the amounts otherwise indemnifiable hereunder.
14. This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, executors and personal and legal representatives. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as an officer or director of the Company or of any other enterprise at the
Company's request.
15. The provisions of this Agreement shall be severable in the event that
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law.
16. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in such state, but excluding any conflicts of law, rule or
principle which might refer such governance, construction or enforcement to the
laws of another state or country.
EMCOR GROUP, INC.
By:
----------------------------
Frank T. MacInnis
Chairman, President and
Chief Executive Officer
-------------------------------
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Exhibit A
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Milbank, Tweed, Hadley & McCloy
Paul, Weiss, Rifkind, Wharton & Garrison
Schulte Roth & Zabel
Simpson Thacher & Bartlett
Skadden, Arps, Slate, Meagher & Flom
Stroock & Stroock & Lavan
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